Bankruptcy and Pre-Retirement Planning
Are you approaching retirement? Are you still burdened with massive minimum monthly payment obligations on your credit cards? Are you concerned that you will not be able to continue to maintain these payments once you stop working?
U.S. News and World Report noted in a recent posting that an increasing number of Americans are entering their retirement years with debt. Some 63 percent of U.S. families headed by someone 55 or older still owed money on their home, credit cards, or other debts in 2007, up nearly 10 percentage points from 1992
Over the past 20 years, I have encountered countless individuals in mid-life who have agonized over the prospect of filing bankruptcy. I call it the “moral dilemma”. We have been ingrained with the concept that you work hard and pay your bills on time. I have also observed that, at some point, most of my clients reach a personal “breaking point” in which they come to realize that they have to consider filing for bankruptcy.
If you have answered “Yes” to any of the questions above, I suggest that you consider a different approach. Although it is never too late to actually file for bankruptcy, you could end up in a more advantageous financial position in retirement if you consider bankruptcy in the last 5 to 10 years before you retire – particularly if you have never owned a home and have limited retirement savings.
Many people exhaust everything they have – including retirement funds – to avoid filing for bankruptcy, but yet end up in a situation where it still becomes necessary to file bankruptcy.
In New York, where I practice, all ERISA qualified retirement accounts (IRA, KEOUGH, 401k, 457, etc.) are fully protected from the claims of creditors, even in bankruptcy. Technically, it is considered exempt property, or an exemption.
The worst thing that you could do is to tap your retirement savings to pay credit card debt. If you are considering bankruptcy, do not look to your retirement savings to bail you out. I ask you to look only at your present cash flow. If you cannot meet your obligations based upon your present cash flow, I suggest that you seek the counsel of a qualified bankruptcy attorney.
If you act before you spend down your retirement savings, you may still be able to eliminate your credit card and other debts and still retain your nest egg as you approach retirement.
Unfortunately, if you have already tapped some or all of your retirement savings, attorneys cannot go back and get the money that was already paid out. What we can do is to assist you to protect your remaining and future retirement savings. Filing for bankruptcy will help to stop the harassing phone calls and letters, and leave you debt free so that you can move forward as you approach retirement. While it is never too late to file, the smart move is to seek counsel when the first sign of trouble is apparent – not after you have exhausted your retirement savings.