We understand that if you are struggling with financial burdens you may be considering leveraging your retirement to help manage your debt problem. We strongly urge you not to borrow against or withdraw from, your retirement accounts to pay back debt.
Retirement Accounts Are Protected Through Bankruptcy
In general, retirement accounts are protected through bankruptcy. This means that you can erase your debts through bankruptcy, but you will be able to keep all of the funds in those accounts.
In Georgia, your 401(k), 403(b), and pension are protected. In fact, most retirement plans that have a penalty for early withdrawal are exempt.
Click here to view the full list of assets and belongings that are protected through bankruptcy in Georgia.
Bankruptcy law allows for retirement funds to be protected through bankruptcy because it is good public policy. The idea is that people who have funds for retirement are better able to provide for their needs as they age, rather than relying solely on government benefit programs.
Penalties for Early Withdrawal & Tax Consequences
Withdrawing from a retirement account too early may result in penalties and tax consequences. The penalties and taxes may push you further into debt.
While you may be able to withdraw from your retirement account to pay off some or all of your debts, the withdrawal itself will create new debts. New tax debts are not erased in bankruptcy.
Understand too that the IRS has much stronger collection powers than many other creditors. For example, if you do not pay your tax debt, the IRS has the power to garnish wages or seize money from your bank account without first suing you. On the other hand, most creditors, including credit card debts and medical debts, must first bring a lawsuit against you and obtain a judgment before they have the power to garnish wages or levy bank accounts.
Debt Settlement Often Fails
The truth is many people who attempt debt settlement or debt management programs ultimately end up filing for bankruptcy. To understand why debt settlement is rarely a better option than filing for bankruptcy, read our article Is Debt Settlement Better Than Bankruptcy?
Further, using retirement funds to pay back some debts can impact your ability to file for bankruptcy. Paying back certain creditors over others prior to filing is known as “preferential treatment” and can cause serious problems in a bankruptcy.
Attempting to borrow against your retirement accounts or to withdraw funds will likely be a waste of money and it may impede your ability to get a fresh financial start through bankruptcy. We strongly urge you to consult with a bankruptcy attorney before touching your retirement funds for any reason!
We’re Standing By To Answer All of Your Questions
The Law Office of Barbara B. Braziel proudly serves all of Savannah, GA and the surrounding counties including Chatham County, Effingham County, Bulloch County, Bryan County, Liberty County, Long County.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.