Personal bankruptcy protections can include retirement accounts

When debt levels reach an overwhelming amount it can be stressful for anyone. Filing personal bankruptcy may be the best choice in these situations, as some New Jersey residents likely know. The debt relief offered under the bankruptcy law can assist people as they work to make fresh financial starts.

Filing personal bankruptcy can be a difficult choice for those who are suffering from high debt. Prior to the filing, many first address debt concerns by using funds from accounts such as an IRA or qualified investment account. But taking loans and withdrawals from tax-deferred accounts can lead to fees and penalties in many cases.

Some suggest that if personal bankruptcy appears to be imminent for a person, taking funds from these types of retirement accounts may not be the best economic decision. In addition to the penalties incurred, the removal of funds from retirement accounts can affect the future plans of a person. Delaying retirement or decreased available funds are just a few of the pitfalls that may be created if funds are removed.

Additionally officials note that in most cases, funds from 401(k)s and company pensions are exempted from a personal bankruptcy, depending on the laws of the state in which the bankruptcy is filed. Under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, an IRA can be exempted as well. The IRA accounts can be exempted up to an inflation-adjusted value of $1.17 million.

Protecting your assets from creditors is just one of the concerns that people in New Jersey have when considering personal bankruptcy. When debt becomes overwhelming, it may be wise for a person to review all applicable laws for personal bankruptcy as he or she moves forward to start over and plan a return to financial stability.

Source: Seeking Alpha, "IRA Bankruptcy Protections," Ryan Glover, April 17, 2012

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