On behalf of Law Office of Eric K. Fox posted in Debt Management on Wednesday, July 9, 2014.

Every year more baby boomers are reaching retirement age. However, these same baby boomers are struggling with debt. The recent recession hit many Tennessee residents hard and some are still struggling to keep up. Furthermore, older residents often have other expenses including medical debt that keeps them from being able to pay all their bills.

In some situations, these older people may need debt relief in order to get back on track following a medical crisis, job loss or other financial setback. However, people may wonder how debt relief — such as a bankruptcy — would affect their retirement income.

Under current bankruptcy law, retirement accounts are exempt from creditors in a bankruptcy. This means that assets that are in a 401(k), pension plan or IRA are not going to be used as a means to pay creditors. Therefore, once the bankruptcy proceedings are completed, people will still be able to rely on their retirement funds as income while being debt free.

However, the Supreme Court of the United States recently limited protections on inherited IRAs. When a person is left the remainder of the income in another’s IRA account, which is not treated as a true retirement account. Therefore, creditors can have access to this money in cases of bankruptcy. However, state law may still protect this money, depending on where the debtor lives.

Asset protection can be extremely important to older Tennessee residents who are struggling with their debt loads. These people should understand that there are options available to help them obtain debt relief while still keeping their personal property. With the right help and financial planning, a favorable solution can be created.

Source: The Republic, “Retirement-plan benefits include creditor protections,” Russ Wiles, July 7, 2014