Filing bankruptcy in Kentucky deserves serious consideration, especially if you have mounting medical debt or experienced a job loss. It can give you a way to get out from under crushing debt and move forward with the rest of your life. However, it is important that you understand how it affects your bank accounts and retirement planning before you get started.
According to The Motley Fool, Chapter 7 bankruptcy is the most frequently used form of bankruptcy filing. The court liquidates assets and pays off creditors as much as possible through a trustee. Depending on your circumstances, you may be able to keep some of your assets as a result of exemptions, but it may not eliminate all debt. Generally, in Chapter 7, individuals lose most or all of the cash in their bank accounts, with a few exceptions.
Retirement accounts, such as 401(k)s may remain untouched. Confirm that your plan qualifies for the Employee Retirement Income Security Act with the plan administrator. If it does, it remains unaffected. If it does not, a portion may be vulnerable.
You may lose a chunk of your Roth and Traditional IRAs if you have more than the capped amount, which changes in 2022. However, they have generous exemptions, so you will keep a significant amount to enter retirement.
Creditors cannot touch Social Security income, but if you have an account that mixes that income with others, proving which money came from where is challenging.
Annuities have significant gray area. State rules and the age of the contract are among the factors the court considers when deciding whether to liquidate. If you used funds from a qualified IRA, the exemptions might result in the annuity remaining intact.
Filing bankruptcy is not only time consuming, it often has unexpected challenges and is rarely straightforward. Understanding the situation and your options are critical to making the most informed decision.