You're drowning in debt. From credit cards and medical bills to personal loans, it may feel like you'll never get out from under it all. Your retirement accounts are just sitting there, full of money. It's so tempting to tap into those funds and make your debt go away. But should you? The short answer is no. Here are a few key reasons from a consumer bankruptcy lawyer as to why you should avoid this temptation.
It Costs You Big in the Future
That money for your retirement is meant for your future. Taking it out now deprives your retirement savings of years, even decades, of potential growth. Account balances you withdraw today could have become much larger sums by the time you retire. Using retirement funds now means you'll have less income later on.
You'll Owe Penalties and Taxes
Beyond the loss of future growth, you'll take an immediate financial hit by paying taxes and penalties. You'll owe ordinary income tax on any pre-tax retirement account withdrawal. You may also face a 10% early withdrawal penalty if you're under age 59. That penalty and the tax burden could devour up to half of your withdrawal amount.
You May Still Struggle With Debt
What happens after you've spent your retirement savings to pay off debt? Odds are, you're left in the same situation that led to the debt: insufficient income to cover your regular expenses. Without changing this dynamic, debt can quickly accumulate again and you're left without retirement savings. It's better to focus on increasing income or decreasing expenses.
Filing for Consumer Bankruptcy Can Help
Filing for consumer bankruptcy is a more feasible option that keeps your retirement savings safe and secure for your future. According to U.S. Courts, Chapter 13 bankruptcy allows a person to repay all or a portion of their debt under the supervision and protection of the Bankruptcy Court. What's more, the majority of retirement accounts are protected in bankruptcy, so they're not used to repay your debts.
It's normal to look for a quick fix when you're buried in debt, but turning to your retirement savings can leave you worse off in the end. Protect your future by finding other ways to pay off what you owe, including filing for consumer bankruptcy. If you're ready to learn more about consumer bankruptcy, including whether it may be right for your situation, reach out to our law firm at Wiley & Jowers for a consultation today.