You can file bankruptcy and still keep your 401k. Have you thought of cashing out your 401k instead of filing bankruptcy? That is the first solution to out of control debt many of my clients come up with. Why not? The plan says you can always take a loan, or get the money if it is a hardship. If stopping the bill collectors isn’t a hardship, what is? You need breathing room now, don’t you
Your 401k is not an ATM
Your 401k is not an ATM. This is your retirement money. Ever wonder why it is so hard to get the money out? Do you realize that no one can get to that money except you?
In Ohio, retirement funds, including 401k are exempt. That means it is safe from the bill collectors. Even if they sue you, that money is yours alone. Not even a court can order you to take out your retirement money to pay off a lawsuit. The only way those suing you can get it is if you take it out and give it to them, or if you already took out the money and you have it in your bank if they try to garnish your accounts.
What does all this mean to you? It means you can file for Bankruptcy, have your bills erased, and still have your retirement funds safe in your 401k or IRA. Growing and waiting for you to retire and have the lifestyle that disciplined saving allows you to have. If you borrow against it, or take it out, even if you pay back every cent you lost all that compounded interest and dollar cost averaging saving over time gives you.
File Bankruptcy, Discharge Bills, Keep Retirement Funds
It is always so sad that when people first call me to set up a bankruptcy appointment. The first thing I tell them is not to take anything out of the 401k to pay the bills. They confess they have already done that and it was not enough. There is always a long pause after I tell them that they could have had a bankruptcy discharge and their money as well. Now they are still choking on bills, their take home pay is lower because of a 401k loan, and they are talking to a bankruptcy lawyer anyway.
The next time someone suggests you take from your 401k for your bills, tell them you know better. Someday, when you retire, you will be glad you filed bankruptcy instead.