Suddenly becoming unemployed and finding yourself deep in debt can be overwhelming. Many people go to whatever means possible to avoid filing for bankruptcy, even emptying their 401k or retirement accounts. While it’s admirable to go to great lengths to pay your debtors and support your family, dipping into your 401k is not a good idea for many reasons.
Why not?
The obvious reason is that you’ll pay taxes and a stiff penalty for using the money in your retirement account. Even more important, though, is that your 401k is protected as long as it stays in your retirement account. Creditors cannot garnish it or force you to use it to pay them. If you lose your job and need to move your retirement account, find another account that will let you directly roll it over. The money loses protection if it stops in your personal banking account for any length of time.
Additionally, what happens if you empty your account and pay current debts, but are still unemployed? You may have to end up filing bankruptcy down the road, and have no retirement left.
What if You Really Need It?
If your financial situation is such that you still need the money even when you are seeking relief through bankruptcy, be sure to not withdraw the funds until your attorney has filed your case and it has been assigned a case number. If you do not follow this process, your bankruptcy trustee may be able to take your retirement funds to pay your creditors.
The bottom line is to avoid emptying your retirement funds. However, if you must withdraw, wait until after your bankruptcy case has been filed. If you find yourself enduring financial hardship during these tough economic times, schedule a consultation with an experienced Ohio bankruptcy attorney like Chris Wesner. Have an advocate on your side to ensure the best possible outcome. Contact us for a free consultation.