401K withdrawl before filing?

[JackFrostMI]

I haven't seen a lawyer yet but thinking of filing within the next month or two and wondered what impact there would be if I made a 401K withdrawl now? I'm unemployed and my extensions just ended so I no longer have any income & husbands income barely covered the basics (house/heat/insurance/food). My son is about to graduate and we have college fees that need to be paid and other non-credit expenses. Are 401K withdrawls counted as income for the 6-month look back? I will be filing for BK just on myself & it's my 401K money - but I don't want to mess up the filing for Chapter 7 or 13 by doing a withdrawl before filing (but I really need the money now).

Any advice?

[Mi Bankruptcy]

I haven't seen a lawyer yet but thinking of filing within the next month or two and wondered what impact there would be if I made a 401K withdrawl now? I'm unemployed and my extensions just ended so I no longer have any income & husbands income barely covered the basics (house/heat/insurance/food). My son is about to graduate and we have college fees that need to be paid and other non-credit expenses. Are 401K withdrawls counted as income for the 6-month look back? I will be filing for BK just on myself & it's my 401K money - but I don't want to mess up the filing for Chapter 7 or 13 by doing a withdrawl before filing (but I really need the money now).

Any advice?

If your serious about filing DONT pull ANY money out of your 401K. You are also in the best position to file if you are current on everything. Meet with atleast 3 attorneys and read this forum and ask questions.

[ssmdem]

As my attorney put it yesterday, don't ever pull 401K money out. You're converting an exempt asset to a non-exempt asset. Best of luck to you!

[bktmom28]

We pulled out $3500 from my husbands 401K about a year ago so that we could pay our house payment. The money was gone in a matter of months because we were drowning in debt and we used it to pay our bills. Looking back, I wish we never would have, not because it affected our bankruptcy,but we could have filed back then. Instead we waited for 5 more months after pulling it out. Before we filed I asked our attorney if we had to let the TT know that we had made a withdrawal even though the money was gone, and she said when she looked at our bank statements, she could not see why the TT would question it. We had not made any large withdrawals where the money would be hidden and it was totally up to us. The TT never questioned it and our attorney said if she ever did, that we could explain that the money was used to avoid having to file BK. If you are going to file, I would file. Don't cash it out if you don't have until after you file if you are still going to do it. Better to be safe than sorry.

[JackFrostMI]

If your serious about filing DONT pull ANY money out of your 401K. You are also in the best position to file if you are current on everything. Meet with atleast 3 attorneys and read this forum and ask questions.

I'm NOT current on my credit card bills - I'm more than 6-months behind on 3 of them and will stop paying the others this month because I just don't have the money. Is being BEHIND going to hurt me when I file for BK? Guess I don't understand how this all works. I appreciate the advice - THANKS!

[DebtHater]

I wouldn't touch your 401K for several reasons.

It will be counted as income if you pull it. Left where it is it's exempt.

Although you could use the money now, you'll need it even more later and you'll lose the compounding interest.

Most of all, figure about one third of what you withdraw you will immediately loose. You will have to pay 10% early withdrawal penalty and it will be taxed based on your tax bracket. If you need $5,000 you should be prepared to withdraw $7,000. $7K at 25% tax is $1,750. $7K @ 10% penalty is $700. That $7K you withdraw will end up costing you $2,450 with means you'll only see $4,550.

Again, bottom line: Leave it alone.

Being behind on your accounts will not hurt you when file BK.

[BCA2009]

If your serious about filing DONT pull ANY money out of your 401K. You are also in the best position to file if you are current on everything. Meet with atleast 3 attorneys and read this forum and ask questions.

Bad Advice! I don't know where you are getting that idea. Being current has no positive effect on filing, except if you want to keep a car or home you need to be current on those.

You do not need to be current on anything else you are giving up or credit card debt.

As soon as you decide for sure to file, stop paying all credit cards and anything else you are giving up. Otherwise you are throwing money away.

[Logan]

Bad Advice! I don't know where you are getting that idea. Being current has no positive effect on filing, except if you want to keep a car or home you need to be current on those.

You do not need to be current on anything else you are giving up or credit card debt.

As soon as you decide for sure to file, stop paying all credit cards and anything else you are giving up. Otherwise you are throwing money away.

When I declared BK I was current and it definitely helped my credit bounce back quickly. I was in a position that I felt comfortable paying my minimum payments and still able to pay rent and food until I filed for BK.

The time between my decision to declare BK and file were relatively quick but if it had been 3 months or more I would have considered not making anymore payments to my creditors.

Logan