You work hard. You put money in your retirement account. And you hope that means you'll someday enjoy a long, comfortable retirement. Except it doesn't always work that way.
Any number of surprises or disruptions can hurt your plans. And Baby Boomers have suffered more of these than previous generations. Their troubles have led them to file a record number of bankruptcies, even during retirement. So, if you're struggling with your finances and thinking about retirement, what would bankruptcy mean for you?
Bankruptcy might not impact your retirement fund
It wouldn't make sense for you to file for bankruptcy to protect your retirement if your bankruptcy would wipe out your retirement account. Fortunately, many retirement accounts can withstand bankruptcy filings.
Not every retirement account is protected, but most employer-funded accounts are. Especially if it's an account protected by ERISA law. Protected accounts may include:
- 401(k) plans
- HMO plans
- Life insurance
- Prescription drug plans
It's worth noting that the money from these plans isn't protected once you pull it into your bank account. But it may be protected while you continue to work and grow it. And this leads us to the next point.
Bankruptcy can be complicated
The truth is that if you're struggling with crushing debt, bankruptcy might be the best way for you to get a second chance and start rebuilding. Then again, it might not. You want time to weigh your options.
Bankruptcy isn't a one-size-fits-all process. There are myriad rules, processes and options, and you want your attorney to walk you through all the relevant information to find what might work best for you.
Your considerations may include:
- Your bankruptcy might clear most unsecured debts, such as medical and credit card debts. But there are debts that bankruptcy may not erase.
- Should you pursue a Chapter 7 or Chapter 13 bankruptcy? The answer depends on your current financial situation and goals.
- When should you file? When you're retired or approaching retirement, you may want to think about how your bankruptcy could affect your credit score and housing situation.
- There may be other ways to deal with your debts. Bankruptcy may not be the only—or even the best—tool available to you.
In the end, bankruptcy is both complex and deeply personal. You want to make sure the plan you choose is the best one for your situation. Then you want to act at the appropriate time.
Don't wait until it's too late
How long should you struggle with your bills? Even as Business Insider remarked on the rise of Baby Boomer bankruptcies, it noted that many of those bankruptcies are "too little too late." While they may erase much of the crushing debt, they may not afford Boomers a chance to rebuild their dreams.
If you're wondering whether bankruptcy could help you get your retirement back on track, you want to explore the idea sooner rather than later. Yes, bankruptcy may help you clear your debt. But you also want a plan—and time—that's tailored to help you pursue your goals.