Law Office of Michael Primus

WILL I LOSE MY RETIREMENT IF I FILE BANKRUPTCY?

There are many misconceptions about bankruptcy, amongst them is the notion that people lose everything if they file bankruptcy. Fortunately, the bankruptcy laws are designed to give the honest but unfortunate person a second chance. To facilitate that goal, the law allows bankrupt consumers to retain necessities of life (referred to as exemptions in legal terminology) while having debts forgiven. In contrast, corporations and limited liability companies are not entitled to exemptions, and if a corporation or limited liability company files bankruptcy assets are often sold to satisfy debts. Some small corporations are owned entirely by one person which complicates matters, and requires an experienced attorney, if either the person or the corporation plans a bankruptcy.
The exemption laws protect Social Security as well as tax deferred retirement accounts and many other assets in and out of bankruptcy. Tax deferred retirement accounts include: 401k plans, 403b plans, 457 deferred compensation accounts, IRA’s, pensions and almost any type of employer or union sponsored retirement. This means non-governmental creditors are prohibited from seizing exempt assets whether or not a bankruptcy is filed.
The law allows, but does not require, consumers to use retirement funds to repay debts. Often in the midst of financial turmoil people consider taking a retirement withdrawal to pay debts and avoid bankruptcy. A retirement withdrawal will usually be considered taxable income for the year the money is taken and can result in additional penalties. Money forgiven through bankruptcy is non-taxable. For some, taking a retirement withdrawal is the best choice but that choice should be made with a clear understanding of all options including bankruptcy and the corresponding tax implications.

At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. We offer a free consultation and have offices in Walnut Creek, Antioch, and Hercules.
Law Offices of Michael Primus can be reached in Antioch or Walnut Creek at 925-231-4793 or visit www.MichaelPrimus.com.