Our story ... now that we are nearing the "discharge" stage

[Jacey]

OK, so now I am confused...who all would recommend cashing out an IRA to pay off my debt? It would take all my retirement money, but would wipe out my debt and I'd be back to square one. (Oh, how square one seems appealing with years of debt riding on my shoulders!) Olivies is the first response that presents that side of things.

[coak1875]

Jacey you know here is my view, everyone says filing BK screws people up for years, I have a friend at work that filed BK 7 January would make (2) years, we talk about it all the time since I am filing on Tuesday next week, she said people make it seem like you cannot get back up, she went to Bank of America to apply for credit they said your credit score looks great, but can you come back in January when you are at the 2 years mark and we would be happy to work with you. Yes people make it seem that when you file its all over, its not, its about now using your the money you make and managing it properly to now enjoy life with out being burdened, its about realizing that we screwed up because of bad spending decisions and correcting it by learning now to live within our means. Its not as bad as people make it seem, I struggled with filing BK 7, I wanted to pay everyone off as long as it takes yes maybe I can if I did not have the house but with the house payments I cannot do it. But yes i have learned to live within a budget and it feels great to have money allocated for everything that I did not have before. You will get back up, I disagree about using the 401K retirement is important if you cannot pay the bills by negotiating with the creditors then file BK 7 keep your money, BK is not the end of the world you will bounce back as long as your future spending decisions are done wisely.

[discouraged]

I, personally, am so sorry I took out my retirement to pay bills after being laid off. What a waste of good money! Now I do not have that to fall back on and in the 2-yes 2 years since I was laid off I have had one 6 month part time job and now am temporary for 3 months. In December, when this job ends and if unemployment does not continue, I will have next to nothing to live on (what I've saved from this job only).

I was so proud to continue paying my bills, even though it meant having absolutely no life, until I realized - once the money from my retirement was gone, and I was again scrimping just to find money for groceries, how fruitless it all was. Yes, I did get my cc's down, but I still had house payments. Now I am losing the house and altho I haven't filed yet, I kick myself for taking the money that could have seen me through this and giving it to credit card companies.

So, in my situation, it would have been much, much better to have filed BK when I first became unemployed, or shortly there after.

Just to let you know, once that retirement money is gone, it is gone. And the cc companies could care less how you survive.

[olivies]

OK, so now I am confused...who all would recommend cashing out an IRA to pay off my debt? It would take all my retirement money, but would wipe out my debt and I'd be back to square one. (Oh, how square one seems appealing with years of debt riding on my shoulders!) Olivies is the first response that presents that side of things.

Here's the thing- you said you have never been good with credit cards. So you're good with saving because you have a 401K, but not good at spending only within a budget. Either way you need to learn to do the latter. Filing saves you having to pay out to the creditors. Paying them saves you from having to file BK. Filing you get to keep your 401K. Paying them you get the satisfaction of knowing you are taking responsibility for trying to change your ways. It's easier to get back into debt 3-4 years down the road after filing BK because it didn't cost you anything. You'll think more than twice about going back into debt after paying off the creditors from your 401K. I would also check the tax implications for you of doing a withdrawal.

[coak1875]

Jacey how about sharing a little more of your situation, like how much you owe, is it all consumer or is the most of it CC debts, If you own a home are you behind, anything to understand more to better advise.

[Jacey]

I owe $51,000 in unsecured debt, have a single current mortgage of $1690 and have a small bit of equity in my home that is built on the family farm. (sell it and die at the hands of the family!) I lost a high paying job in October 2009 and now have a job earning half as much. I'm getting to the point in the cycle where I pay all my income toward the debt and have to use the cards to buy groceries. I have $85,000 in my IRA which would just about cover my unsecured debt once all the ugly taxes and penalties are taken out. (probably 40%) I am 42 years old, have two cars with positive equity and could be paid off within one and two years. I pass the means test because I have a family of 5, but I am over median income. My financial advisor told me that people who pull money from the IRA tend to fall back into serious debt within a year. (He also gets paid on commission on the balance of my account, and he's an ass with a big mouth in a small town) I have the paperwork in process for filing a chapter 7 and I just started missing my first payments ever. American Express has called a bazillion times, and each time the phone rings I want to pick it up and tell them I'm sorry and they can have anything they want. I'm OCD about paying bills on time, and I feel guilty and rotten. I don't know if I'm more ashamed that I'm ditching my creditors or worried that someone here will find out. Is that too much info?

[chicagoannie]

Thanks so much for sharing. You sound like me about 8-10 years ago, with the high mortgage and credit card balances. Add in my ex-husband, his FOUR cars, and our pretty large income which we spent as soon as it came in! My situation is different now (just filed Ch 7 yesterday, with $.14 in the bank!) being unemployed and on my own with 4 kids BUT I know I will get back on my feet once I am working. And I will STAY CHEAP even when I finally get ahead. We've lived without cable, internet, landline phones, bought second-hand clothing, used napkins from McDonalds for tp - you name it and we've survived. I will never take money for granted again, that's for sure!

[meateater]

Hi Jacey,

A few other things you might want to consider: how stable is your current job, does anyone in your family have health issues, what would happen if you used the IRA to pay the debt, then lost the job? I'd be concerned that if you use up all the IRA and anything unexpected happens, you end up in bankruptcy anyway, but with no retirement money. Have you run all the numbers very carefully? It seems really coincidental that there's just enough money in the IRA to get back to zero - given that you seem to have some aversion to filing (I think many of us felt the same way) you might have subconsciously missed something to make the numbers seem to work out. If there's anything you forgot, you could be in debt even after you cashed the IRA.

A few years ago I discovered Dave Ramsey. Much of his advice is basic financial planning which was helpful as the only thing I learned growing up was to just keep working and don't live extravagant, and it will all work out. I'd recommend getting his book out of the library and start planning how to manage your finances going forward (whichever way you resolve the debt, you should consider making changes to reduce the possibility of any future financial disasters). After I read the Ramsey stuff I started getting goals and paid off a student loan that I thought I'd have for the rest of my life (they survived my BK). Ramsey's very negative on BK (although he himself filed). I ignore that part and focus on the aspects of building a good financial future.

Good luck.

[olivies]

Another issue that could play into it is the age of your children (future expenses) and whether or not your income will go back to it's previous level in the near future (to rebuild that retirement fund). Is there a husband in the picture?( possible dual income or second job for one of you if there is and you both currently work). You could always sell your vehicles since they have equity and buy a couple cash cars to get you through the next couple years - thereby eliminating 2 debts right off the top and freeing up some income. Either way you choose, you know you can't pay the bills first and then pay for food last. You could always negotiate the debt with the creditors and pay a reduced amount- technically they are supposed to send you a 1099 for the write off of the difference between what you paid and what they took but it's not uncommon for them to not do that (I agree with the previous poster- read Dave Ramsey either way). Have you made sure you checked your state's exemptions for your family land, cars, cash on hand, etc.? All things to consider.

[Jacey]

I've checked it, and the lawyer thinks I'm going to come out without losing property by using the federal exemptions. (I may lose a tax refund, but that's a small price to pay.) My IRA cash out and my debt are almost exactly equal, which almost seems like a sign. My oldest child is 13 and the youngest is 6, so we'll be needing college funds in 5 years. My husband is a teacher, so steady job without a lot of income. My job is stable but relies on a contract being re-signed in a year or so. I have read most of Dave Ramsey's stuff, and I agree with it. I started trying to do the debt snowball, but quickly used up my $1K savings cushion trying to pay the minimum payments. (I know, that's not how it's supposed to work.) You have to have some $$ to start the snowball rolling, and we work as much as we can having 3 kids. Chicagoannie, I'm running to Mcdonalds for free tp!

[coak1875]

Jacey it will be fine, you will feel better trust me.

Jacy, i beat myself over 1 year wanting to pay all my debts and not filed BK. I wanted to pay as little as I could but it would evenually go away. I felt like a failure because I borrowed the money to buy the house and start as business. However reality evenually sank in that its either I make a decision to stop feeling rotten especially when I have done the best I can to make it go away. You know I still stay with my previous post I am 43 years old you are 42 years old. I think you should hold onto your retirement account, you will feel bad for now about filing but you will feel better later. You will bounce back and the thing is, I decided that even after I file BK if I want to I can still approach my creditors about giving them something to settle even though it was wiped in BK for my own conscience sake. But don't leave you self strapped for cash who knows whats going to happen in a year from now you have no way of knowing. But you do know that at least you will have some monies put away that you can use for extreme emergencies if necessary. Try to come to terms with your situation but the best is to realize your mistakes and more on. It will be better soon believe it or not. This is coming from someone who have try to do everything to fix this with BK but in the end, I don't feel bad anymore since I know I have done my best.