0

Keep your retirement assets and life insurance through bankruptcy


One of the biggest assets owned by Americans, other than their homes, is their retirement plan. Through the explosion of 401(k) accounts and mutual funds over the past 25 years, many have assembled a significant retirement nest egg through regular payroll deductions. Of course, there’s a catch — the money is inaccessible without paying a hefty tax and penalty, and in some instances can only be withdrawn (or borrowed against) by a showing of financial emergency.

But having a significant retirement account doesn’t help you when a job loss, medical problem, business failure, death, or other financial disaster strikes. In those situations, a bankruptcy discharge may be the only way to get relief — and in doing so, you can keep your qualified retirement assets.

A “qualified retirement” asset is one that enjoys tax benefits, typically a combination of:

  • tax deductibility of contributions;
  • tax-deferred growth; and/or
  • tax exemption of proceeds upon proper withdrawal

And of course, all qualified plans have a 10% penalty (plus accrued taxes, if any) upon early/improper withdrawal.

The vast majority of employer-sponsored retirement plans (defined benefit pensions, defined contribution pensions) and employee-contribution plans (401(k)s, 403(b)s, many thrift savings plans, etc.) are qualified retirement plans. Individual Retirement Accounts (IRAs) and Roth IRAs are also qualified retirement plans. If you get a tax break on a long-term retirement savings account, chances are it’s a qualified retirement plan and exempt from creditors in bankruptcy. You can keep it!

The same is true for cash value life insurance policies. Many of these are called “whole life,” “straight life,” “variable life,” or “universal life,” and what they have in common is an accumulation of cash surrender value over time. Cash value life insurance is also exempt from creditors. This is important, as cash value grows on a tax-deferred basis in a similar manner to qualified retirement plans. You don’t pay the taxes until you take it out. For this reason, life insurance is used by some financial planners as a way to supplement those who don’t have a qualified retirement plan or who have maxed out their contributions.

The important message through all of this: bankruptcy doesn’t have to wipe out your retirement or life savings. If you have a financial crisis and need relief, don’t let fear of losing these assets keep you from consulting with a qualified attorney about your bankruptcy options.

Texas: ‘Miracle’ or Myth?

What does it mean to be a middle class wage-earner and consumer in Texas?

For too many families, it meansâ a struggle to make ends meet. Texans want safe, stable jobs with decent wages and reasonable benefits that allow them to raise a family, own a home, and save for a comfortable retirement. Much has been made lately about job growth in Texas. Unfortunately, for middle class Texans, the so-called “Texas Miracle” has been more myth than reality. So, how does Texas stack up to the rest of the nation on key quality of life indicators?

So, how about those jobs? Texas has the highest rate of workers paid at or below the federal minimum wage and our median hourly wage is 10% lower than the national average. We are dead last in the percent of Texans with health insurance and are near the bottom in the percent of workers with employer-based health insurance.

As for workplace safety, nine Texans die on the job every week, making Texas the deadliest state to work in, according to data from the Bureau of Labor Statistics. We also have the highest rate of workplace fatalities among the 10 biggest states. Also, with a quarter of workers without workers’ compensation coverage, we are last in workers’ compensation coverage, lagging far behind the rest of the country.

And home ownership? Texas ranks near the bottom in the rate of home ownership, a fact that is exacerbated by our high rates of personal bankruptcy, low personal credit scores, and high rates of foreclosure and subprime mortgages. Plus, with the highest home insurance rates in the nation, more of our money is going to pad insurance company profits.

Finally, what about that comfortable retirement? It isn’t so comfortable. Texas ranks near the bottom in median household net worth and in the “nest egg index” which looks at personal savings and investing behavior. Also, nearly half of middle income Texans report having less than $5,000 in total savings – over a quarter have less than $1,000.

This stark reality is compounded by a lax regulatory climate that typically favors industry over individuals and a broken civil justice system that is too often closed to consumers, patients, and workers who face needless injury and financial devastation. That’s right. If you are hurt on the job, ripped off by your insurance company, or have your savings wiped out by Wall Street shenanigans, you likely won’t be able to have your day in court.

Not quite the picture of middle class bliss that many politicians and spinmeisters would have us believe.

Texas Watch | 815 Brazos Street, Suite 603 | Austin, TX 78701

Work (512) 381-1111 | Fax (512) 381-1115 | texaswatch@texaswatch.org

A Cruel Retirement, Part One: Medical Crises


Retirement is supposed to be a great time of our lives. Everything is paid for, the kids are grown and you are ready to travel. Unfortunately, this image is more ideal than real. The truth is that retirement for many people is difficult. Whether this fact impacts you or an elderly loved one, it is important to understand that the dynamics of filing for bankruptcy are very different when we are older.

A recent article in a London publication documented that there has been a dramatic shift in England of the number of elderly people who have financial troubles. Bankruptcy attorneys are seeing a similar shift in the United States and, particularly, in Texas. There are so many causes of this problem that it is hard to focus on any one reason.

Part of the problem is health care. We tend to have more health problems in our later years. While insurance sometimes pays a majority of these costs, even the deductible can be devastating to someone on a fixed income. I have found that many people really do not have a feel for how difficult it is to live on a fixed income. Yet, those same people often live check to check themselves. Imagine living on an income that does not adjust for rapid inflation. Even gasoline costs have increased. And medical creditors are among the most vicious creditors of all. They do not take “no” for an answer. The days when you could pay just $10 a month to a medical creditor are gone. Hospitals often turn people over to a collection agency soon after their hospital visit, and the phone calls begin immediately. Elderly people are often not able to withstand the intense pressure of collection professionals, who will ask questions such as, “don’t you believe in paying your bills?”

People in their later years are very proud. They have worked all of their lives, paid all of their bills and done quite well for themselves. Suddenly, they are faced not only with little income but with little or no prospects for generating enough income to be able to dig themselves out of a hole. When a bill collector begins the harassment, it is not simply an annoyance for most people in their mature years. People who have always been able to write a check and make that payment suddenly have their honor and their worth challenged.

Even if an elderly person can get past the simple embarrassment and emotional end of being harassed by a medical bill collector, a real fear is that more such creditors may be on the way. The sad truth is that when both spouses are suffering from health issues, there is no escape. The fear that you may not be able to get treatment for your spouse if you do not pay current medical bill is one most of us can relate to. We would do anything for our loved ones. Don’t forget, bill collectors know this and use it extensively when dealing with those who have medical debt. Such collectors often suggest helpful hints for paying the medical debt — all you have to do is pull out that credit card that has had a zero balance for years and pay the bill. When you do that, the calls will stop, the bill is gone and you can feel good about yourself again. An instant solution. Unfortunately, far too many people succumb to that suggestion.

If you or a loved one is facing a medical debt situation, consider talking to a bankruptcy attorney PRIOR to depleting the resources that may be needed to sustain your years of retirement. The consultation is free and there may be other options. However, until you sit down with an experienced attorney, you will not know if bankruptcy can help.