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Retirement funds are protected in bankruptcy, one of the reasons is due to the 10% penalty. Take that away and you may have lost some, if not all, of your retirement if you were to declare bankruptcy.

I don't believe this is entirely true. Qualified retirement plans (such as pension, 401(k), etc.) are protected in bankruptcy, but I think that IRA's are "reachable." One of the only arguments in favor of leaving 401(k) assets within the 401(k) and not rolling over to an IRA is that they are more secure from creditors in the 401(k).

Ira
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