To avoid the filing of Bankruptcy, clients sometimes ask us if they should take some or all of the 401K funds to pay their creditors. For most clients, we believe this is a bad idea. Here is an April 17, 2020 article by Elizabeth O’Brien, the deputy editor of Money, that explains why:
“I’m still haunted by stories from the Great Recession of people filing for bankruptcy, but not before they’d drained their 401(k) in an ultimately unsuccessful bid to avoid having to discharge their debts that way. Please don’t think this is your only option. The desire to honor your obligations and avoid the trauma of bankruptcy may tempt you to try it. But your 401(k) is protected: federal law allows you to file for bankruptcy and leave your retirement savings intact. So, if you suspect that bankruptcy might become necessary, consult a lawyer. Millions of Americans will face financial struggles during this pandemic, and there’s no shame in exploring the reset that bankruptcy offers. You don’t have to raid your retirement fund to pay off your credit cards, even though the CARES Act has made that easier by waiving the 10% early withdrawal penalty.”
Before you take your hard-earned 401K funds to pay creditors, call us right away for a free initial consultation.
Doroshow, Pasquale, Krawitz & Bhaya’s bankruptcy practice is focused throughout all of Delaware. We have offices in Elsmere (suburban Wilmington), Bear, Dover, Middletown, Milford, Millsboro, Seaford and Smyrna.