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Should you use retirement savings to avoid bankruptcy?

On Behalf of | Jan 22, 2019 | chapter 7 |

Filing for bankruptcy in Indiana can be a momentous decision. No one expects to sink into crushing debt, and the decision to file can be traumatic for some. Due to the stigma associated with bankruptcy, you may feel tempted to go to extreme lengths to avoid filing. Perhaps you have even thought about dipping into your retirement savings in order to pay off your debts.

However, according to CNBC, financial experts advise against this course of action as it may only be a short-term solution with the potential to do further financial damage. If you withdraw funds from such an account before you reach the minimum required retirement age, you will not only have to pay taxes on the funds you have withdrawn but, except in a few special situations, you will also incur a 10 percent early-withdrawal penalty. Furthermore, there are protections in place that allow you to you to retain most, if not all, of your retirement savings even after filing for bankruptcy. Therefore, discharging your debt through bankruptcy with your retirement savings intact puts you on a more stable financial footing. 

Chapter 7 bankruptcy quickly eradicates many types of consumer debt from sources such as personal loans, medical bills and credit cards. One exception is student loan debt; unless you are able to prove undue hardship, student loans are extremely difficult to discharge through bankruptcy. Nevertheless, discharge of other debts may free up enough money for you to make your student loan payments. 

The information in this article is not intended as legal advice but provided for educational purposes only.