Keep Your 401k and File Bankruptcy

Do you know you can keep your 401k and file bankruptcy? Yes, all of it. The first post I did for this site cautioned against using your it as an ATM. Recently the news reported that record numbers of middle income families had tapped retirement funds for emergencies.

Think about having a 401k retirement nest egg.

Would you:

1. Have a comfortable retirement?

2. Live somewhere you just shovel sunshine?

3. Have assets to leave to your grand children?

4. Give it all to a credit card company?

That’s right. Nearly every wage earner who consults with me is either paying 401k loans, has withdrawn all the retirement savings, or has stopped contributing. Is this really the answer to your debt problems?

Let me give you an example. A regular wage earner much like yourself is mired deeply in credit card debt. On the left hand is the debt. On the right hand is this account just sitting there waiting for you to retire. You have other plans for the right hand. Hardship withdrawal. This is just what one person did.

Don’t look at debt as a hardship

All the funds went to pay off the credit cards. Sound good so far? Unfortunately the withdrawal meant additional income, and early withdrawal penalties. Once the tax return was completed there was no money to pay the additional tax.

What to do? Just look at the left hand. In place of debt you have a fist full of credit cards with no balances. Use the credit cards to pay the additional tax.

Sound extreme? It all really happened. He feared bankruptcy so much that he succeeded in giving away his retirement to the credit card companies, only to run the cards back up to pay the tax for taking out the money for the credit card payments.

Now he is in my office to file bankruptcy because he still had the credit card debt and no 401k to draw on anymore. If it weren’t true it would be funny.

Stop Dipping Into The 401k; Don’t let them rob your bank

What can I do to convince you that a 401k is for your retirement? Nothing else. It is protected by law. It is exempt in a bankruptcy. It is yours. To keep. Your creditors can never get to the money in it, unless you take it out and give it to them. It’s just like robbing a bank. It’s just that you are the bank.

Overwhelming debt is not a hardship. It is something that can be very easily attended to. You can file bankruptcy. Wouldn’t it be better to have nothing in you left hand. No credit cards, no debt. In your right hand you can have a retirement asset that continues to grow through the power of compound interest, just like you credit card balances used to grow.

There is nothing anyone can do to get the money back that everyone is in such a hurry to cash out the funds and give to credit card companies. Put a lock on you account. Forget you have it. Let it grow. If debt is overwhelming call me. Later you will need your 401k more than any “hardship.”

Picture by iStockPhoto.

Keep Your 401k and File Bankruptcy


Bill Balena

Bill Balena is an attorney with offices in Westlake, Ohio. He represents consumers in Chapter 7, Chapter 13, and Federal Student Loan Resolution. He is a former city prosecutor, and an accomplished OVI, DUI, DUS and criminal trial attorney.

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William Balena
Lorain and Cuyahoga County Bankruptcy Attorney

30400 Detroit Road
Suite 106
Westlake, OH 44145
(888) 633-5426 Toll Free
(866) 936-6113 Toll Free FAX
(440) 365-2000 Local Elyria Number

By appointment in Elyria

I am not your lawyer, and nothing in this site creates that relationship. Bankruptcy law requires that for me to be your bankruptcy lawyer you and I must have a written contract. So, unless we both agree in writing, you are not my client.

I am a debt relief agency. I help people file for bankruptcy relief under the bankruptcy code.


  1. Bill Balena says

    Karen, thanks for leaving a comment on this post. Although the matter would bear more research, a program I subscribe to stated that distributions from retirement accounts are not included in means testing. I suppose that after reading my post that you realize you CAN file bankruptcy and KEEP your Ohio deferred comp. Stop tapping your retirement funds to pay credit cards. No one can get to these funds except you. They can sue you, but Ohio Deferred Comp is totally exempt from collection. They can not attach or garnish the money there.

  2. Karen baker says

    i recently took money out of my ohio deffered help me make monthly payments on my 80,000.00 worth of credit cards because i was laid off from mahoning county and my husband was laid off from construction company in sept 2010 and i thought i would be able to keep up with these payments. it was around 8,500.00 total before taxes that i withrew in the last few months. do i have to count this as income for the last six months when i file bankruptcy? We both collect unemployment for now total weekly for both of us is $686.00 GROSS Weekly.


  1. […] you lose your job? This is not an exam question. It is real life. Most people fail. They empty the 401k. Why not? The only way you can usually get the money is if you sever your employment relationship. […]