It is common for someone unfamiliar with bankruptcy law to use some or all of their 401k savings to pay debts when it becomes apparent their budget is not feasible. If income cannot satisfy debt over time it might appear that the only solution is to use retirement savings to satisfy the debt. However, there is a solution that will allow those under financial duress to eliminate many of their debts while maintaining possession of a qualified retirement plan.

The adequacy of Social Security is not certain, and may become even less certain in the future.

According to an article published by the AARP, the average monthly distribution for a Social Security recipient in 2021 is $1,543.00. In the two months preceding the publication of this article we have seen the highest inflation rates we've seen in over a decade of 4.2 and 5 percent for April and May respectively. For Social Security to maintain pace with the inflation rate we can increase the percentage of Social Security withholdings, we can increase the age for retirement, or the Federal Reserve can print more money, further exacerbating an already high inflation rate.

Furthermore, the population of those 65 years of age and above(retirement age) continues to outpace those between the ages of 20-64 years of age (working age). According to the U.S. Census Bureau in 2003 there were 80 working aged people to support 20 retirement aged people, today there are 72 working aged people to support 28 retirement aged people. Furthermore, we've developed a society where advanced education is requisite to enjoy a life of financial stability so that it might no longer be appropriate to label those with 20-24 years of age as working aged. If we remove those aged 20-24 from today's working class population we have 69 working aged people supporting 31 retirement aged people.

Qualified Retirement Accounts are 100% protected from seizure in Bankruptcy under Illinois Law.

Over time chromosomes decay from atmospheric radiation causing susceptibility to natural entropy and decay inhibiting the capacity for labor and cognitive functions, so that an elderly person will eventually find they cannot perform the tasks they were able to when they were younger. It is unfortunate to see someone spend the last decade or so of their life on an inadequate fixed income under financial duress with no feasible solution. A solution to avoid this miserable fate is to make regular contributions to a 401k or other qualified retirement plan, and never withdrawing until retirement.

What if you withdraw your 401k and find more debt than you had anticipated?

Our society has a convoluted medical billing procedure, often it is not apparent what the cost of a medical service will be until a bill is received about a month after the service occurs. Even after a bill for a particular medical service is paid there might be an additional service charge by another provider included in that same service, but their fee was not included in the first bill.

Sometimes a person might withdraw their 401k to pay off a debt, but afterwards finds there is additional debt that the 401k withdraw will not cover, and then decides to file for bankruptcy. By this time it is too late to protect the 401k, it loses its "exempt status" upon withdraw. 

Bankruptcy is not for everyone.

Those with jobs that require a certain amount of financial responsibility may not be able to file for bankruptcy without a significant detriment to their livelihood (i.e. lawyers, accountants, bankers). For these individuals tapping into the retirement account could be a better option, especially because it's not uncommon for people to work into their 70s in these professions.

Free Consultation

Call our office for a free consultation to determine if Bankruptcy is the solution for you.

Bankruptcy is a technical practice for an experienced debt relief attorney, like those at Smith Law, Ltd. Because there are so many nuances in the application of bankruptcy law, it is inadvisable that an individual not experienced or knowledgeable about Title 11 of the U.S. Code, and how the courts have interpreted those laws, to file bankruptcy without the assistance of counsel.

If you would like to speak to experienced debt relief attorneys, please contact Smith Law, Ltd.

We are a debt relief agency. We help people file for bankruptcy relief.

Smith Law, Ltd.
(217) 345-6222
622 Jackson Avenue
Charleston, IL 61920