Many people in Rockland County, New York, particularly those who have a consistent work history, are likely to have some or even a large portion of their wealth wrapped up in a retirement plan like a 401(k) or an IRA. The idea behind these plans, which often come with tax incentives, is to encourage people to save money for retirement.
Despite this, when a New Yorker runs into financial problems, it may be very tempting to take a loan out or even cash in a retirement plan, even though cashing in will usually come with a substantial tax penalty. People in Garnerville and Rockland, therefore, should be advised that cashing out a retirement plan is often not necessary and may even be unwise.
The reason is that under both New York’s bankruptcy exemptions and the exemptions provided under federal law, retirement plans are generally completely exempt during the bankruptcy process. This means that a debtor can keep them despite filing bankruptcy. Some exceptions may apply. For example, a debtor who, immediately prior to filing bankruptcy, makes a large contribution to a 401(k) may be subject to scrutiny and, possibly, being ordered to return the extra money.
Also, it is important to remember that these exemptions apply to qualified retirement plans. In other words, a debtor with savings in a large traditional bank account could wind up losing most of his or her money following a bankruptcy, as a simple savings account is not considered retirement savings under the law. Therefore, a lower exemption would apply.