By the time they think about filing for bankruptcy, little or even nothing may be left of their retirement savings. And then I have to tell them that they could have saved the whole balance of the account.
401(k)’s and their cousins are among the most well-protected of assets, both in bankruptcy court and outside bankruptcy, too. Ordinary creditors (prime example: credit card issuers) can almost never get at them. If you end up having to file a bankruptcy case, they are protected virtually 100% from any attachment (there may be limits on IRA accounts, but they are so high I have never seen them come in to play). Therefore, the only proper strategy is to file the case, erase the debt, and save the account for its original purpose, saving for the future.
If you have been dipping in to an IRA or 401 (k) to stave off creditors, please stop and call me instead. We can almost always come up with a better plan for dealing with the primary problem (might include a bankruptcy, might not). If you live in the Merrimack Valley, on either the New Hampshire or Massachusetts side of the border, I’ll give you a 1/2 hour consultation with no charge or obligation.
By Doug Beaton