A frequent question of consumers who are considering bankruptcy in Colorado Springs is what will happen with money that is tucked away for retirement. Many filers want to know in advance what are the risks or strategies that go along with bankruptcy and retirement accounts.
Many anti-bankruptcy advocates will advise consumers to cash out their 401(k) plans in order to pay off debts. But what they don’t say is that by cashing out 401(k) plans at early stages, the consumer could be hit with major penalties that will shrink the amount of money available to the person now – and can devastate retirement plans.
Also, what these people don’t say is that attempting to negotiate with lenders to pay off debt quicker rarely works. These companies know they can hold debt over a person’s head and if the consumer pulls money out from a 401(k) and attempts to negotiate their debt unsuccessfully, having that money documented in a savings account will hurt their chances of bankruptcy.
Colorado Springs Bankruptcy Lawyer Stephen H. Swift believes that these are major issues that must be addressed by an experienced attorney who is dedicated to helping the consumer get back on their feet. Retirement accounts are critical to keep intact and they shouldn’t be used to pay off debt.
How Can a 401(k) Plan Be Protected by Bankruptcy?
Bankruptcy laws protect 401(k)s and other retirement accounts from being tapped into by collection agencies and lenders. There is no reason to pull this money out to pay creditors.
They may pressure consumers into pulling out this money, but it is hard-earned money that is used to provide for the future. Why would you ruin your future, when your earning capacity will be heavily diminished, in order to help in the present? That is a poor strategy, but the credit card companies don’t care about the consumer, they care about their profit margins.
If a consumer cashes out their 401(k) or retirement accounts to pay their debts, they will not only have to likely take a hit for cashing out early, but the money automatically becomes open to creditors. Also keep in mind thatthere are tax implications.
For instance, if a consumer owes $40,000 in credit card debt and pulls out $30,000 from a 401(k) after penalties and the company actually agrees to settle the debt, that’s $10,000 of taxable income. That could be used against you by the IRS for tax purposes.
What Should I do with 401(k) in Colorado Bankruptcy
The first step for anyone considering bankruptcy in Colorado Springs is to consult with an experienced lawyer. Don’t pull money out of a 401(k) or retirement account to pay off debt without getting legal advice first. There are options here and a consumer shouldn’t act hastily and without proper planning.
The Law Office of Stephen H. Swift for a free initial consultation to discuss your situation, your rights and whether bankruptcy may be right for you. Serving clients in in Colorado Springs, Pueblo, Denver and the surrounding area.
Colorado Springs bankruptcy – 866-893-2440 or 719-520-0164– legal consultation
