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Can You Save Your IRA or 401(k) before Bankruptcy?



By:Mike Cibik

The title just about says it all. It’s a really sad thing to get a call from someone asking for bankruptcy who has already spent all their retirement funds trying to avoid bankruptcy. You can’t get it back. And if you still need bankruptcy, you still need bankruptcy. However, as many know, IRA’s and 401(k) and most other retirement plans are exempt in bankruptcy. What that means is that if you have the foresight to file bankruptcy before draining your retirement funds, you can keep those retirement funds and get a debt discharge.

I understand why some people spend their retirement money on dischargeable debts before bankruptcy. Usually, they are just so used to paying their debts that they will employ any legal means to keep doing so. Bankruptcy may be something in their shadowy awareness, but it certainly sounds scary and to be avoided at all costs. People may even have the more misguided idea that “saving their credit” is vitally important. (Hint: saving your credit when in serious financial peril is like rearranging the deck chairs on the Titanic.)

If you are operating with a permanent deficit and don’t expect it to change, do not draw down your retirement funds to feed that deficit awaiting the day when you have nothing. Have the courage to read the writing on the wall and learn your bankruptcy options. The bankruptcy system protects your retirement funds for a reason. No one wants you to be indigent in your old age.


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