If I file for bankruptcy, will I loose my 401K?

Question

I'm deep in credit card debt. If I take a loan against the 401K I loose 20%. Is this better than filing bankruptcy??

Answer 1

Nope they can't touch your 401k. It's a protected asset. so you shouldn't touch it either!

Answer 2

No, the only way to lose your 401k is to the IRS and to your ex-spouse in a QDRO. So long as your bankruptcy isn't due to owing the IRS money (I don't think that would get discharged anyways) then you're ok in regards to your 401k.

People say take the distribution first...I say exhaust every other resource. First, even to access the 401k you'd have to quit your job. So you'd be 1) out of a job 2) owe big penalties, and 3) have killed your current credit situation and your retirement prospects.

Bottom line is if you file bankruptcy, it's a temporary thing. Yeah you can't easily get a mortgage or a car loan with a decent interest rate but it's only on your credit report for a few years. If you take a distribution from your 401k you'll NEVER be able ot make up those funds. Assuming you live to the average life span of 85 or so that's 18 years after retiring....FAR longer than the 7 years of bad credit rating.

Never sacrifice long term fiscal health for short term gains.

Answer 3

With a few rare exceptions, you do not lose your 401K in a bankruptcy.

What's best for you depends on your circumstances, but I would think twice before touching the 401K.

Chances are you'll never pay the money back, and the finanial impact of that is bad. Also, you are at no risk to lose it now, and there may be no need to give it up.

I suggest you see a credit councilor. Many areas have them for free. Call you local city or county governement, check out the phone book and look on the net. Watch out for debt consolidators who work for a fee: Try to find a non-profit organization.

Pretty much the last thing I would do is cash out a 401K to pay off a credit card. Talk to a credit councillor and you'll see why.

Answer 4

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RE :If I file for bankruptcy, will I loose my 401K?
I'm deep in credit card debt. If I take a loan against the 401K I loose 20%. Is this better than filing bankruptcy??
Follow 5 answers

Answer 5

No, you will not lose your 401K to bankruptcy. The laws have not changed that much at all. If you talk to an attorney you would see that its very easy to file.

Answer 6

anything is better than bankruptcy, trust me. and today you can't just wipe away like you use to be able to, new laws. now it goes against you and you still have to pay it all off, just thru a payment plan now with the courts....and imagine skipping that payment, HA!

sell your car, sell your house, sell anything you got, take 3 jobs, ANYTHING but bankruptcy.

I was forced into one due to business partner cheating and collapsed the company due to theft. That was 2000, I still can't sign for a house nor get normal % on a car loan, even though I have reopened the biz and am doing great. The term "bankruptcy" kills it so bad.

Answer 7

Nope. File Chapter 13 bankruptcy. You can protect your assets and get on a payment plan if you own a home, vehicle, etc. Costs about a grand and will potentially absolve you of debt. (Transfer your titles and deeds to a family member first)

Your credit will be f*cked for 10 years or so, though.

Answer 8

Your 401k is exempt from creditors in bankruptcy. It might be available to pay Domestic Support Obligations or taxes. If you take a loan against it and don't pay it back, you'll pay taxes and penalties.

Answer 9

99% of the time they won't touch it. Set up a free consult with a bankruptcy lawyer and talk to him (or her) about any questions you might have. Start making a list of questions you would like to ask and you can add to it anytime until your appointment.

Answer 10

Yes...bankruptcy follows you for 7-10 yrs...using your 401K will only cost you money, not your credit history, anything you may want to buy in the future, jobs...etc...