Should I file for bankruptcy or raid my retirement accounts?


Q. I have $45,000 in credit card debt and I recently lost my job. I do have funds in retirement accounts that I could take out – with penalty and taxes – to pay these bills while I look for a new job. Or does bankruptcy make more sense so I don’t lose my retirement money?
— Feeling hopeless

A. We’re sorry to hear you’re entering into this difficult time.

Although you may be able to take money from your retirement account, don’t act quickly.

You should speak to a bankruptcy lawyer first.

“When you file for bankruptcy in New Jersey, there are certain exemptions available that allow you to keep your property,” said Karra Kingston, a bankruptcy attorney in Union City. “One of those bankruptcy exemptions applies to retirement accounts.”

Kingston said most people who file for bankruptcy in New Jersey are allowed to exempt all of their retirement money and get debts eliminated. This means that creditors will no longer be able to go after you anymore, she said.

“Since I do not have all of your financial information I don’t know if you qualify for a Chapter 7 bankruptcy,” Kingston said. “So the first step would be to make sure you qualify for a Chapter 7 bankruptcy.”

If you are able to file under a Chapter 7 bankruptcy, then it would probably make the most sense to file for bankruptcy before wiping out all of your retirement accounts, she said.

In the meantime, speak to your credit cards to see if you can negotiate a more manageable payment.

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This story was originally published on Sept. 30, 2019. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.