How Retirement Accounts Are Impacted by Filing for Bankruptcy in Michigan

Are you currently facing insurmountable debts? Perhaps you’ve already looked into debt negotiation or consolidation but to no avail. And if you’ve found no success in working with creditors to create a feasible payment plan, it might be time to consider bankruptcy.

Yet, if you have a sizable retirement account, you may be wondering how retirement accounts are impacted by filing for bankruptcy in Michigan. You might even be considering using some of your retirement savings to pay off your debts rather than file for bankruptcy.

It’s at this point when the counsel of skilled bankruptcy attorneys can make all the difference. So, let’s take a look at the bigger picture.

How Retirement Accounts Are Impacted by Bankruptcy in Michigan

Depending on your situation, declaring bankruptcy could be a highly effective way to manage debts while preserving important assets. But will you be able to protect retirement in bankruptcy?

The short answer is yes. Simply put, retirement accounts are often protected in bankruptcy proceedings in Michigan, regardless of whether you file for Chapter 7 or Chapter 13.

Chapter 7

If you file for Chapter 7 bankruptcy, your assets are typically liquidated to pay off creditors. Certain assets, however, are exempt. And retirement accounts happen to fall into this column.

This means that your IRA and/or 401(k) during bankruptcy are more than likely protected. Along with those, 403(b), defined benefit, and profit-sharing plans are also generally exempt. An experienced bankruptcy attorney can advise you regarding your ability to exempt your retirement savings in a bankruptcy case.

Chapter 13

Chapter 13 bankruptcy is a little different from Chapter 7. It doesn’t require liquidation of assets. Instead, it involves creating a manageable repayment plan to settle debts over a typical period of three to five years. Unlike Chapter 7, Chapter 13 doesn’t require liquidation of assets.

Therefore, your retirement accounts will likely be spared in this process.

Can I Use My Retirement Savings Rather Than File for Bankruptcy?

If you have a decent chunk of change in your retirement account(s), you may think that using some of those funds would be better than filing for bankruptcy. You’ll need to strongly consider this decision. While addressing financial challenges now with funds set aside for the future could have some serious long-term consequences.

The first and most obvious reason you may want to avoid this path is that retirement savings are intended to provide financial cushioning in your later years. If you take them out now and are unable to recoup them, you may end up with insufficient funds to cover essential living expenses that come with aging and retirement.

In addition, withdrawing from your retirement account(s), especially before the age of 60, may result in a withdrawal penalty and be subject to income tax. As such, this could significantly reduce the amount you actually receive to pay off those debts.

And while bankruptcy harms credit scores, the potential financial hardship you face from withdrawing from your retirement account(s) and the inability to make necessary payments later is hardly the recipe for keeping your credit score safe.

You Need Expert Consultation to Protect Your Retirement Savings

Now that you understand how retirement accounts are impacted by bankruptcy in Michigan, it’s time to consult with bankruptcy attorneys who can help you navigate this often complex terrain

The lawyers at Gold, Lange, Majoros, & Smalarz, P.C., are those attorneys. With more than 135 years of combined experience in bankruptcy law, we understand the importance of protecting your retirement savings in bankruptcy. And we know how to do it.

So call us today at 248-462-7698. Or, if you prefer, schedule your free initial appointment with us by filling out our intake form.