$64,000 Consumer Debt

Below I cite information on debt resolution, negotiating a debt, using a 401(k) for payment of unsecured debt, and bankruptcy. I commend and caution you on negotiating with credit card companies or collection agencies without the basic how-tos in debt negotiation.

The amounts you quote are attractive settlement amounts and compare well to those of professional debt settlement firms. However, I hope you received those settlements in writing. You do not mention if you will pay those balances monthly with interest charges or made a lump-sum payment. You do not mention a mortgage, so I assume you are renting and able to still pay your rent.

Debt Resolution

Even though you may feel alone, there are many people are in your situation. Bills.com has glossary of terms and discusses the difference between debt resolution and consolidation to help determine what is best for your situation.

Negotiated Debt

Refer to debt negotiations and settlement advice for negotiating basics. You may choose to negotiate settlements yourself or hire debt negotiation service to represent you to your creditors. The above site provides tips to handle the negotiations yourself but if you have difficulties, hiring a professional is advisable.

401(k)

The answer to your question will depend largely on your 401(k) plan's policies regarding distribution of funds. The IRS provides employers and 401(k) plan administrators a fair amount of discretion in how they set up hardship distribution rules they distribute 401(k) investments to plan participants, so the rules can vary widely from one plan to the next. I encourage you to consult with your 401(k) plan administrator to determine if you will be able to withdraw funds from your 401(k) while you are were employed by the company that established the plan.

Remember that even if you do not currently qualify for regular distributions based on your employment status or age, you may still be able to withdraw funds from your 401(k).

If you qualify for a hardship distribution or other special distribution. The types of distributions available to participants vary from plan to plan, so again, you will need to discuss this option with your plan administrator. Even if you withdraw funds from your 401(k) that would otherwise be taxed, you may be exempt from penalties and some taxes due to your age, allowing you to access the funds you need without fear of penalty. Before making any decision to withdraw funds from your 401(k), I encourage you to discuss your plans with a certified financial planner or accountant to make sure that your plans will not put your retirement investments at risk.

To read more about the regulations governing 401(k) retirement accounts, I encourage you to visit the Internal Revenue Service (IRS) page 401(k) Resource Guide - Plan Sponsors - General Distribution Rules. This page provides the guidelines Congress wrote into law regarding various general provisions in 401(k) plans and specifically "distribution necessary to satisfy financial need."

1099C - Cancellation of Debt federal tax form

Under federal law, a financial entity is required to send a taxpayer a "Form 1099C Cancellation of Debt" whenever it forgives or cancels a loan balance greater than $600. This may create a tax liability for you because the canceled debt is considered "income" for tax purposes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to the taxpayer's tax return. Further information may be found on Bills.com resource Cancellation of debt income.

Bankruptcy

In some situations, filing bankruptcy is a viable solution. Bills.com offers a plethora of information on bankruptcy with definitions and a "how to" guide to Chapter 7 or Chapter 13.

Recommendations

I urge you to contact a financial adviser or an attorney in your state with experience in bankruptcy or debt. Do not jeopardize your 401(k) unless absolutely necessary. Planning for your retirement is extremely important, so before you cash in your 401(k), verify that this is the best alternative.

Another option is to access the Bills.com debt saving  center to get no-cost quotes from pre-screened service providers who specialize in debt resolution.

I hope this information helps you Find. Learn & Save.

Best,

Bill

bills.com