Sell 401k to pay for chapter 7

[Proudpops79]

Hey everyone,

We are in such financial ruins and are about to file chapter 7. The problem is we don’t have the $1500 to pay. I can cash out my 401k because I switched jobs. I know this will hurt my retirement later but that’s the only way I can see to get the money before we get sued by the creditors. My question is ...how much will we have to pay in fees and taxes if I cash it all out? We are trying to save the money but we’ve been hit with unexpected expenses all at once ....car years up, washer quits, toilet starts leaking, need oil change in another vehicle ...lol I know age plays a big part in the 401k fees. I’m 40.

thanks for your time

[justbroke]

Typically, 401(k) distributions before the age of 59.5 will cost you an auatomatic 10% penalty, plus it could push you that amount that you take into another tax bracket. I say to expect to pay 25% additional tax (not including the penalty) for the distribution. That means a 35% hit unless you can put the money back within the 60 day rollover period.

The tax bracket will really depend on your income.

[Proudpops79]

I have about $16,500 in my 401k so far. I wonder how much I’d have to pay total? Does it take from your tax refund in February? I could possibly save those fees for then if they do. Also where we are filing chapter 7, will it look odd to have that much extra money in the bank? It is a large amount but it will be from 401k. I’m just weighing out my options. We’ve already stopped paying our credit cards and personal loans and the collection calls have started. We need to file ASAP and don’t quite have the $1500 yet.

[justbroke]

I would not take money out form a protected 401(k) and have a significant amount of cash sitting in a bank account. I can't tell you whether or not that money would be protected under some wildcard or other exemption. I don't believe that it would be wise to even create the condition where the Trustee questions the money. If you are leaving an employer, have a 401(k), and are filing bankruptcy, you're probably better off leaving it there, or doing a direct rollover. You might be able to even fashion some sort of partial rollover, but that is beyond any advice that I can provide.

What's the rush? if you just stopped paying then you're months away from any creditor taking any real legal action (except for maybe if you're not paying on the motorcycle). In that time you can save up enough for a Chapter 7 attorney.

For now, you could actually get several free consultations to see what a local attorney thinks about your case, and get an approximate fee to file.

[Proudpops79]

I only want to rush it to because I’m afraid I will get calls at work. I recently started this job after leaving my previous place of employment where I had been for 13 years. I work in a small area and we are all in one room. I can handle the calls on my cell because I can ignore them. I got a loan from Heights Finance a few months back and they know where I work, and I’m afraid that they will start calling me at work.