Some Bankruptcy Basics: Municipalities can file for Chapter 9 which is reorganization; Chapter 7 filing is liquidation of assets; Chapter 11 is a filing for reorganization; Chapter 12 is debt relief for farmers and Chapter 15 is filing for entities in more than one country.
We need to be aware that corporate and municipality bankruptcy filings can impact retirement planning… in the form of corporate and municipal bonds held in retirement accounts.
I often write about the importance of retirement planning to your overall financial well- being and to your estate planning strategy.
During the current economic environment, retirement planning has taken on some new risks. Those risks can and do affect estate plans.
Retirees often depend on their portfolio investment income to satisfy some of the ‘luxuries’ of living a comfortable lifestyle. Many ‘retirement’ portfolios include bonds. Bonds are notably a fixed income investment and have been considered an alternative to the sometimes more volatile equities marketplace.
But the bond market is not impervious to major risks, that of bankruptcy and default. Default rates have recently increased on corporate bonds. There are basically two types of bankruptcy that a corporation can file – Chapter 7 and Chapter 11. It is beyond the scope of this article to cover all the issues of bonds and bankruptcy.
The two major decisions for a bond investor are whether to hold a bond through a reorganization of a corporation or to sell the bond when bankruptcy or default occurs.
To gain more insight into the issue, Fidelity has an excellent synopsis of the issues of bonds, bankruptcy and default.
You can go to fidelity.com – Investing Ideas - and the article titled: “When bonds go bad.”
If your investment portfolio holds bonds, take a moment to read the article and consult your financial advisor to understand your current risks.
Retirement planning is not a ‘set it, forget it’ strategy. Individuals are advised to review trends and adjust their plans accordingly.
In the current economic environment, review your estate plan to understand how your future goals are impacted.
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