When you are going through a financial crisis, your focus is on meeting your immediate needs and not your long-term savings. The coronavirus outbreak is creating a financial crisis for the people who have lost their jobs or seen a reduction in their income. It is understandable to justify withdrawing money from your 401(k) if you need to pay your mortgage or a vehicle loan. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act of 2020”) has made it easier for people to withdraw from their retirement accounts. People younger than 59 ½ years old will temporarily be allowed to withdraw up to $100,000 from their 401(k), 403(b) or Individual Retirement Account (IRA) without a 10 percent penalty or borrow up to $100,000 with a longer repayment period. Even though there is no penalty for withdrawing, this is still a taxable event, but the taxes can be paid over a three-year period, rather than all at once next year. However, you should consider other options, including bankruptcy, before you make a withdrawal that could jeopardize your retirement. You lose the time value of your invested funds working for you over a 20 or 30 year period.
Relief for Consumers
The CARES Act of 2020 includes several provisions that may help you with your debts and personal expenses. Most people know about the one-time payout of $1,200 that most individuals will receive, but the law also:
- Adds additional funds and weeks for unemployment
- Provides foreclosure moratorium for 60 days
- Allows people to forbear their federally backed mortgage payments for up to 12 months
- Suspends payments on federally backed student loans until September 30th
- Excludes stimulus payments from their income if they file for bankruptcy
- Extends the maximum repayment period for Chapter 13 bankruptcy plans that have been approved by the Court from five years to seven years
Some creditors have also shown some willingness to be flexible with their customers who have been financially affected by the coronavirus outbreak, such as delaying collection action or modifying loan agreements.
Bankruptcy and Your Retirement
There are several advantages to filing for bankruptcy rather than depleting your retirement money:
- Your retirement account is protected from creditors during bankruptcy.
- Discharging debts through bankruptcy is a more permanent solution than trying to keep up with debt payments by using your retirement money.
- Making up your lost retirement money is difficult if you are constantly in debt.
- You will be free of debt and able to use your income on essential living expenses.
Filing for bankruptcy and withdrawing from your retirement account are both serious decisions that you should not make without talking to an attorney and financial advisor.
Contact a Collin County Bankruptcy Lawyer
The financial consequences of the coronavirus epidemic are causing a lot of stress and leaving people with important questions. At The Page Law Firm, we encourage you to contact us with your questions about whether bankruptcy could help you with your current situation. To set up a free consultation with a Frisco, Texas, bankruptcy attorney, call 214-618-2101 or email us directly at [email protected]