Perhaps you have worked hard for many years. You have accrued a nice sum in your pension or 401(k) account that should see you through retirement, which is still a few years off. So, it is natural to worry about what happens to these funds if you file for bankruptcy.
Do you lose everything? Do you risk a retirement plagued with mounting medical bills and housing insecurity? The answer is no because Illinois law allows you to keep 100 percent of your retirement accounts.
Avoid dipping into your 401(k)
Unfortunately, many people dip into their retirement accounts to stave off bankruptcy. In quite a few situations, the odds are against them from the beginning, and using their retirement funds only postpones a filing. They eventually find themselves in bankruptcy anyway and with the huge added imposition of having lost a significant portion of their retirement savings, if not all.
Why retirement accounts are off limits
Banks and creditors cannot touch your 401(k) or pension in a bankruptcy. There are a few reasons behind this. For one thing, bankruptcy is not punitive. The law aims to give filers fresh starts that help their lives in the big picture. Seizing their retirement accounts to pay off creditors would be unusually punitive and likely lead to many issues when the filers retire. Who would have to pick up the slack? In many cases, it would be the government. It is true that preventative measures pay dividends, and the government recognizes that it is better for them - and for you - when you keep your retirement accounts.
So, does the safety of your retirement accounts mean you should continue to put money in them even as your debts mount? Not necessarily. If it is possible for you to avoid bankruptcy by lowering the monthly amount you contribute for a while or by suspending contributions for a short time, maybe you should do that. An attorney or financial counselor can walk you through your options.