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Bankruptcy: Alternative to drawing on New Jersey retirement funds

A common misconception is that people use – or misuse – the option of declaring bankruptcy as a way to get out of paying credit card debts they've irresponsibly racked up. Financial experts believe, however, that is not the typical scenario. In New Jersey and across the country, a personal health care crisis is a leading cause of bankruptcy filings. When a medical crisis occurs, many people resort to early withdrawal from a retirement account, though this is not likely the best option.

Often after a serious illness, it's not just medical costs that are financially devastating. The ensuing loss of income frequently leaves individuals with no option but to rely on credit cards to pay their bills, and the resultant debt just continues to pile up exponentially. Sadly -- and frankly, unwisely -- many individuals feel at this point that they must avoid bankruptcy at all costs and turn to their retirement accounts.

However, common sense suggests that a consultation with an attorney experienced in bankruptcy law may be worthwhile. A lawyer can offer counsel on issues such as a debt management plan, which can help individuals avoid taking funds from their retirement accounts. This can be especially important because once that money has been withdrawn and used for debt relief, many individuals are left with little savings for their retirement. Bankruptcy can offer legal protection against this, as IRAs are protected at up to almost $1.3 million.

New Jersey residents who feel overwhelmed by credit card debt do not need to be ashamed of considering bankruptcy. Instead, this approach is often a valuable option to avoid financial devastation. An experienced bankruptcy attorney can help to explore all available options to achieve lasting debt relief and set the stage for a return to financial stability.

Source: slate.com, "Ask the Bills: I'm in debt because I got sick. Can I raid my retirement fund?", Helaine Olen, Nov. 30, 2016

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