The planned closure of Regional Acceptance Corporation's Arlington office, a Truist auto-finance affiliate, will eliminate about 205 full-time positions in two rounds beginning around Nov. 30 and ending by Feb. 28, 2027, as reported by Chron. For the workers facing job loss, the financial pressure can be immediate, and many may consider tapping retirement savings to stay afloat. However, Leinart Law Firm cautions that withdrawing from a 401(k) or IRA to pay down credit card debt can be a costly mistake, because those funds are often protected in bankruptcy.
Texas law provides robust protection for retirement savings. Under Section 42.0021 of the Texas Property Code, employer-sponsored retirement plans and individual retirement accounts are exempt from seizure for most debts, regardless of whether the funds are vested. Federal bankruptcy law offers similar protection for tax-exempt retirement accounts, meaning a 401(k) balance generally remains with the filer in a Chapter 7 bankruptcy case. This protection is crucial for laid-off workers who might otherwise drain their nest egg to satisfy creditors.
Early withdrawals carry additional consequences. Distributions taken before age 59½ are typically taxed as income, and a 10 percent additional tax may apply. More importantly, using protected retirement funds to pay credit cards or medical bills converts exempt savings into payments on debts that a bankruptcy discharge could have eliminated entirely. In other words, workers could lose both their retirement savings and the chance to wipe out unsecured debts.
Instead of withdrawing, affected employees should explore their legal options. A Chapter 13 repayment plan can provide breathing room to catch up on a vehicle loan or mortgage while protecting retirement accounts. "Many people treat a 401(k) as the first source of money for debts after a job loss, yet it is often the account creditors are least able to reach," said Marcus Leinart, founder of Leinart Law Firm. "We review retirement balances, severance, and debts together before any money leaves the account, because a withdrawal can carry tax costs and forfeit protections a bankruptcy filing would preserve."
The closure of the Arlington auto-loan office is a reminder that job loss can trigger hasty financial decisions. Workers who understand the protections available under Texas and federal law may avoid unnecessary withdrawals and preserve their retirement savings for the future.
