Should I cash out my 401K, enough to pay off my debt or file bankruptcy, reaffirm my mortgage and preserve the 401k?
I have $70K in credit card and medical debt resulting from a massive cut to income and my former employer abruptly filing bankruptcy. I own a home but am upside down and not able to sell, though it is currently on the market. I also have $150K in a 401k. I'm in my mid 30s. Should I cash out the 401K, enough to pay off the debt or file bankruptcy, reaffirm the mortgage and preserve the 401k, as its an asset that can't be touched by the BK courts? I have a wife and 3 kids to support and my income has taken an 80% cut over last year. To date, all bills have been paid on time and credit remains ok, though bloated. Honestly, its all smoke and mirrors and I'm barely surviving, robbing Peter to pay Paul. Please help!
Consider long and hard before resorting to liquidating 401K plans to pay creditors:
- These assets are generally protected from collection actions by creditors
- They are hard to replenish once spent
- Using retirement savings to pay creditors may create new debt in the form of income taxes and penalties for early withdrawal.
You have other options to consider. Debt settlement, also called debt negotiation, is a form of online debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 or Chapter 13 bankruptcy. The trade-off here is a negative credit rating versus saving money and a low payment that gets you debt-free fast.
Here are the facts:
- Freedom Debt Relief is a member of the Better Business Bureau
- Freedom Debt Relief appears to be one of the largest debt resolution firms in the country.
- The founders of the company are Stanford Business School alumni with impressive backgrounds in the financial services industry.
- One of the founders of Freedom Debt Relief is on the board of directors of The Association of Settlement Companies (TASC) and was a founding board member of United States Organization for Bankruptcy Alternatives (USOBA)!
Give them a call for a no-cost consultation about your debt resolution options. If you still find yourself unable to afford the payments for a settlement program, bankruptcy would be something you should consider. I suggest you find an attorney who has experience in bankruptcy to discuss this option.
I hope this information helps you Find. Learn. Save.