When wanting for inspiration, the blogger inevitably turns to that Emmy-saturated NBC sitcom 30 Rock.* It's the kind of show that TV-people like, because it's about TV people. Now, recall an indelible exchange between the jejune, young(ish), perpetual-singleton, Liz Lemon, and her conservative, capitalist mentor, Jack Donaghy:

Jack: So what are you gonna do with your money? Put it into a 401(k)?

Liz: Yeah, I gotta get one of those.

Jack: What? Where do you invest your money, Lemon?

Liz: I’ve got like twelve grand in checking.

Perhaps it's not the young person's propensity to divert disposable income to retirement accounts. Isn't a higher take-home necessary for a bachelor or bachelorette's trappings: designer duds, fancy shoes, cars that go fast? Yet, ultimately, clothes go out of style (or can't combat the waistline), shoes wear out, and cars break down. And then what are you left with? Invest the same money in retirement and it'll be there when you need it.

In bankruptcy, retirement's relevant for both young and old. This applies in terms of asset protection (a safe harbor), as well as achieving debt relief for less (qualifying for chapter 7 or qualifying for low payments in a chapter 13). Here's how so:

I. Asset protection

When one files chapter 7 bankruptcy, there are rather broad protections for most qualified retirement accounts. Hundreds of thousands may be put aside and be there when you need it. When one files a chapter 13 bankruptcy, qualified retirement money does not affect the threshold payment amount. On the other hand, plain old savings, CDs, annuities, and the like, which are not retirement accounts may be liquidated in chapter 7 (if they exceed certain allowances; some or all of a $23,500 allowance may be allocatable to non-retirement savings**) or set a corresponding threshold for payment in a chapter 13. There may be common sense limitations. If a healthy 25 year-old has a quarter-of-a-million-dollar 401(k), a trustee may question its validity from a "reasonable and necessary" standpoint.

II. Minimizing costs

Bankruptcy's end result is freedom from debt. Or as Mel Gibson put it in Braveheart: "Free-DOM... from debt." [Really, that whole Anglophobic movie was a metaphor about debtors (the Scots) and creditors (the English)]. The question is what does freedom cost?

There are often compelling reasons to elect to file chapter 13 bankruptcy rather than chapter 7. Yet, in many cases, chapter 7 is the cheaper and swifter means of discharging debt. Whereas chapter 13 requires a 36- or 60-month payment plan, chapter 7 rids one of debt sans payment, thus making the latter more economical. Qualifying for chapter 7 is a function of disposable income.

Disposable income is what's left over at month's end. In bankruptcy, disposable income is what's left over at month's end... that is available for debt repayment. If there's lots of it, then one does not qualify for chapter 7. And if one doesn't qualify for 7 and opts for a 13, the higher the disposable income, the higher one's payments are. Now, what's left over at the end of the month is not what's... left over (which most people profess is nothing). It's what's left over on paper after deducting from one's income the expenses that are reasonable and necessary. If you have too much income to begin with, you may be hard pressed to qualify for chapter 7: there are only so many reasonable and necessary things to do with one's money. So, what to do if one's too far in the black?

Putting money in savings, CDs, annuities, and the like is verboten. One can't put aside readily available cash and not repay debt. However, funds may be consistently channeled to retirement-accounts and not be counted as disposable income. This channeling must be historically consistent. Eve of bankruptcy retirement-planning is dubious.

If one ultimately does not qualify for a chapter 7 and elects to file a chapter 13--or opts for 13 in lieu of 7 (13 has its own benefits)--then one may deduct continued retirement contributions from one's monthly payment to creditors.

There are additional subtleties including a distinction between mandatory and voluntary retirement contributions in the context of the chapter 7 means test. But the point for the young reader is that retirement planning is not strictly for the geezers. In overcoming present-day liabilities, retirement contributions help preserve assets and facilitate bankruptcy relief. Those who bear retirement in mind better qualify for chapter 7 or benefit form lower chapter 13 payments.

Visit us at http://www.bankonitsd.com/ or call 858-344-0500. E-mail admin@abramslawsd.com to set an appointment or complain about the blog.

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*30 Rock! Return from hiatus forthwith--beyond the inevitable ramifications of a structure-wanting and idle Alec Baldwin--even two minutes' worth of your deplorable fill-in Whitney on the tail-end of a DVR'd The Office is an act of terrible affront to the public.

**Applies to some Californians.