One mistake that people often make when they start to get into financial trouble and are harassed by creditors or third party debt collectors demanding payment right now is to take loans against a 401(k), IRA or other similar retirement fund. What the debtor fails to recognize is that in Iowa, as in most states, retirement funds are exempt from creditors. These funds are given a special status for the debtor and should be left alone! Creditors, even with judgments, cannot get at these funds. That is a good thing because it is about your future stability and should not be spent currently in any attempt to heal bad debt situations.
In my experience as an Iowa bankruptcy attorney almost everyone who attempts to appease aggressive unsecured creditors by taking out such loans–or worse yet, totally liquidating the retirement funds–wind up becoming insolvent or close enough thereto to need to file bankruptcy anyway. Not only that, they usually have penalties and taxes for early withdrawal which need to be addressed–and frankly do not go away even in the bankruptcy. What’s worse is that if the loan is made through an employer’s retirement account, one needs to keep current with the monthly loan payments or for all practical purposes it jeopardizes the relationship with the employer.
Knowing your exemption rights and living by them is critical to protect you in a crumbling economy which is manipulated by the creditors to get everything it possibly can from you, regardless of what has caused the financial difficulty. For the creditor, it is only about profit. But for you, it is about a lot of values that need to be put into balance to create a healthy and sustainable life for yourself and family.
Do not listen to the debt collector. Seek out professional help for yourself–someone who will be on your side and present you with the facts and the law that benefits you.
Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Iowa