The Results that Filing Bankruptcy Can Have on Your 401k
Sometimes things do not work out the way we have planned. Many people are finding out the hard way that even if you work a truthful living, outside factors such as the economy can bring you to your economic knees without warning. If you've been fortunate enough to establish your 401k through an employer so you can fund your retirement years then you'll not want anything bad to happen to your investment. However, if the unimaginable happens and you find yourself in the throes of a bankruptcy filing then what happens to your 401k?
Your 401k if You File Bankruptcy
You probably always related bankruptcy with financially reckless and irresponsible individuals and have never associated yourself with them, but that isn't always the case. In fact, one out of five homeowners own more on their home loans than their home is worth. A lot of these homeowners are hardworking 401k holders just like you & now find themselves in the unfortunate situation of having to file bankruptcy. But what happens to your 401k? Fortunately, you are allowed to make some of your assets exempt from the bankruptcy and your 401k can be one of those exemptions under Chapter 7 bankruptcy. There are limits as to how much you can exempt but it is likely your 401k is protected at a high enough amount to not matter.
Your 401k if Your Employer Files Bankruptcy
Yes, companies can and do file bankruptcy just like individuals can. If your employer does file bankruptcy then your 401k could be at jeopardy. If your employer files Chapter eleven bankruptcy then they will remain in business while trying to correct their finances. Chances are your 401k & health plan is safe in this scenario but you should still check with your plan administrator or union representative to be sure.
On the other hand, if your company files Chapter seven bankruptcy then all their assets are to be placed on the chopping block and that may include your 401k. There is a possibility that you'll still be paid the value of your 401k before it's terminated but that's not necessarily the case. Again, familiarize yourself with your plan and talk to a union rep or administrator to learn the details of your company's bankruptcy.
Learn More About Bankruptcy & Your 401k Today
It could not seem fair but you can live a fiscally responsible lifestyle with your 401k only to see it go up in smoke because your employer made some poor economic decisions. However, every case is different and you will want to talk to a licensed bankruptcy attorney right away if you hear about your company filing bankruptcy because there might be a way you can save your retirement funding from kicking the bucket. And if tis you that is filing bankruptcy then be absolutely sure you're listing your 401k as an exemption so you can keep what's rightfully yours: a funded retirement.
