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Picture this scenario that some older or even middle-aged Miami residents may be facing. A 56-year-old man without any savings is facing retirement in two years, which is happening more and more often as businesses are encouraging workers to take early retirements to save the companies money.

Due to a pattern of unwise spending, he is contemplating bankruptcy. But he is worried about the $266,000 that is socked away in his employer-sponsored 401k and realizes it’s not much of a cushion. Will his 401k be protected in a bankruptcy?

The good news is that 401k plans through an employer are covered under the Employee Retirement Income Security Act of 1974. ERISA protects workers’ retirement plans from creditors in the event of bankruptcy under most circumstances. Additionally, in some cases, employees 55 and up may withdraw some of their pension funds without being subject to early withdrawal penalties.

With that in mind, it makes little sense to use protected funds to pay down debts if bankruptcy is inevitable anyway. An experienced Florida bankruptcy law attorney can advise which other assets (if any exist) are legally protected from seizure by creditors.

While many dream of taking early retirements, in our country’s current financial climate, it is not usually possible or wise. Especially when trying to regroup after a later-in-life Chapter 7 or 13 bankruptcy, a steady income stream is necessary. Even taking on a part-time job or doing some online consultancies can bring in much-needed revenue post-bankruptcy.

A wiser choice is to make the necessary changes in spending habits that created this shaky financial situation in the first place. A bankruptcy attorney may be able to recommend a reputable financial planner to assist with getting a debtor back on track.

Source: NerdWallet, “Ask an Advisor” Brian Frederick, Dec. 04, 2014