Retirement account withdrawals in bankruptcy can seriously impact your Oklahoma bankruptcy filing. Recently a Tulsa family used retirement account withdrawals to pay off certain debts on the eve of filing bankruptcy. The family reasoned that they owed the money and they would take money from their 401K retirement and pay it. Additionally, one of the family members recently lost his job and this was the source of their financial problems. The idea was the retirement account withdrawals will supplement their income until the bankruptcy is filed. This article discusses some of the negative consequences that making retirement account withdrawals before filing bankruptcy can lead to.

Retirement Account Withdrawals Impact The Means Test:

One of the major factors that determine which chapter of bankruptcy a person qualifies for is the means test. In an Oklahoma bankruptcy case, a filer cannot earn over a certain amount of income to qualify for a chapter 7. In the event that they make more than the median family income, as set out in the means test, the bankruptcy filer must file a chapter 13 bankruptcy. The difference between the two is huge. The specific difference are found in other articles in this blog.

An example of a negative consequence that making retirement account withdrawals in bankruptcy is, that the money withdrawn is considered income. The means test calculates all income 6 months prior to filing. If you take a withdrawal, or close out the retirement account 6 months before filing, the money is considered income. When this happens the withdrawal could put you above the means test maximum for filing. In this case you may have to wait several more months before your past six months income falls below the maximum you can earn.

Although I never recommend taking money from your retirement account there are some ways to do it without impacting the means test. One such way is to borrow the money from the account. Money borrowed is never considered as income and you will avoid both having to pay taxes and the IRS penalty for early withdrawals. But, remember that the money you borrow from your account will be secured by that same account. The result is that the money will have to be paid back.

Oklahoma Bankruptcy Doesn’t Have to be Hard

If you cant pay your bills and you’ve exhausted all reasonable options, filing bankruptcy may be a solution for you. Each year thousands of people and businesses in Oklahoma find that bankruptcy is right for them. It doesn’t have to be so hard. Get a free consultation with a bankruptcy attorney. You may find that you’re entitled to a fresh start.