While your retirement account may be a source from which you can withdraw funds, it is generally not advisable to liquidate a protected asset to pay your debts. In Asheville and Western North Carolina, most retirement accounts are exempt from bankruptcy under Chapter 7 of the Bankruptcy Code. Therefore, if you file for bankruptcy, it is highly unlikely that you would be required to use funds from your retirement account to satisfy your debts.
You should also consider that any funds you withdraw from your retirement account to pay debts may be subject to federal income taxes and state income taxes if you are a resident of North Carolina. Further, if you have not reached age 59 1/2, and your retirement plan is a defined contribution plan, such as a 401(k) or an IRA, the money you withdraw from your retirement account to pay debts may be subject to a 10% early withdrawal penalty. After payment of income taxes and early withdrawal penalty, the amount of money you actually receive from your retirement distribution may be significantly reduced.
Your retirement account is your savings for the future. Do not compromise your future financial security without seeking the advice of an experienced bankruptcy lawyer to help you understand your options. You may not have the opportunity or ability to rebuild your retirement savings.
If you are in debt and considering taking distributions from your retirement account to pay your creditors, then you should schedule a free consultation with our experienced bankruptcy attorney to discuss other options that may be available to you.