Bankruptcy Can Save Your Retirement

What most people never seem to understand about their retirement is that it’s never a straight line.  Retirement goals zig and zag, and if you’re going to enjoy your twilight years in comfort and security you have to constantly adjust to keep up.  More importantly if life starts throwing you curveballs before you’re retired, the worst thing you can do is deplete your already-challenging nest egg in order to pay for them.

Increasing Debt

The numbers are depressing: Despite being generally underprepared for retirement already, more and more people are borrowing from their 401ks and IRAs in order to fund healthcare costs, keep home mortgages current, or even to fund school tuitions as they attempt late life career swings after a layoff or downsizing – in fact, Americans over the age of 50 already account for $36 billion in student loan debt.

It’s tempting to draw on your retirement funds to handle these debts and to think about them as “investments in your future” – but it’s a huge mistake for two reasons: One, since you’re essentially borrowing against yourself, these debts can’t be handled with bankruptcy protections, and two, by extension, that means bankruptcy can’t save your retirement from disaster.

The Bankruptcy Option

Bankruptcy has a bad reputation.  But if you run into debt problems later in life when your income is shrinking, bankruptcy becomes your best friend, because your retirement accounts – whether they are 401ks, IRAs, or SEPs – cannot be used to discharge your debts when you’re in bankruptcy.  That means that when you hit bottom with your financial life, bankruptcy can salvage your retirement and ensure you won’t spend the final years of your life trying to make ends meet on Social Security and handouts.