Am I Delusional?

[alorth]

I am trying to figure out ANY way I can to avoid BK. I really really just don't want to do it. We will be forced into a 13, and the very thought of giving my entire Financial Life to the GOVERNMENT for the next 5 years makes me want to puke. It feels like a prison sentence.

One of the attorneys we interviewed said we have no choice. We ARE bankrupt. Then went on to talk about how BK is written into the Constitution. Then about how it is the Christian thing to do, because the Bible says debt should be forgiven every 7 years or something like that. Then he went on to admonish us as basically sinning by "Robbing Peter to Pay Paul" in an effort to not go bankrupt.

But it still makes me feel physically ill. I seriously feel sick in my stomach, I wretch.

I want to cash out the 401k, badly. We have been warned that its the worst possible idea, but I feel we can re-build the retirement easier than we can re-build credit...AFTER the 5 years of Purgatory known as BK13 is up. besides, with the intention of staying in our house, the house itself should have lots of positive equity in 20-25 years, when retirment comes, even though the market is bad NOW and the equity is negative. Is this pie-in-the-sky thinking?

I am tired of crying. Tired of being so depressed, but it feels so horrible. It is literally the worst I've ever felt in my life. I almost can't stand it.

[JEM]

Well, first of all....any attorney that "scolded" me for being in this situation would not be an attorney I go back to. LOL

Second, uhhh hello, they make their living representing people that ARE bankrupt. LOL What does that say about them then?

Things will get better, don't beat yourself up.

[ryan]

I want to cash out the 401k, badly. We have been warned that its the worst possible idea, but I feel we can re-build the retirement easier than we can re-build credit...

Others here can maybe speak to the aftermath of BK, but I would just question your belief that rebuilding retirement accts will be easier than rebuilding credit.... I think you are drawing the wrong conclusion there.

While its understandable how emotional this can all be, too much sustained emotion may be affecting your decision-making.

[Flamingo]

See my response to your other thread you posted today in the retirement forum.

Chapter 13 is not five years of hell. It is difficult and a big eye opener but the majority of people filing get through it. One of the MAIN reasons Chapter 13's fail is that those involved just cannot change their lifestyle to live on a cash only basis, can't budget, don't know how to handle money properly, etc., etc. My posting to you in the other forum tells it like it is as to your 401(k). Many of us felt like you do right now prior to filing - I never in a million years thought we would ever file bankruptcy - we made a huge salary and also made huge mistakes and learned hard from it. But we survived, we kept our home and are doing well with great knowledge from going through the learning and process of filing. Our lives have changed for the better and we learned not to make material things so important.

Since you are not doing well over this and all of us know the feeling, give your family doctor a call, advise him/her you are having severe financial problems and are having a hard time coping with the situation. A mild antidepressant can help you focus and get all through this - believe me. I thought I was going to have a nervous breakdown in the months prior to filing. Right now you are faced with so many decisions to make you feel like you cannot make the correct choice. As I suggested to you in the other thread/forum, a talk with a tax professional or tax attorney can and will set you straight as to some of your financial decisions and what you think the future may hold. Best of luck to you.

[backtoschool]

I am trying to figure out ANY way I can to avoid BK. I really really just don't want to do it. We will be forced into a 13, and the very thought of giving my entire Financial Life to the GOVERNMENT for the next 5 years makes me want to puke. It feels like a prison sentence.

One of the attorneys we interviewed said we have no choice. We ARE bankrupt. Then went on to talk about how BK is written into the Constitution. Then about how it is the Christian thing to do, because the Bible says debt should be forgiven every 7 years or something like that. Then he went on to admonish us as basically sinning by "Robbing Peter to Pay Paul" in an effort to not go bankrupt.

But it still makes me feel physically ill. I seriously feel sick in my stomach, I wretch.

I want to cash out the 401k, badly. We have been warned that its the worst possible idea, but I feel we can re-build the retirement easier than we can re-build credit...AFTER the 5 years of Purgatory known as BK13 is up. besides, with the intention of staying in our house, the house itself should have lots of positive equity in 20-25 years, when retirment comes, even though the market is bad NOW and the equity is negative. Is this pie-in-the-sky thinking?

I am tired of crying. Tired of being so depressed, but it feels so horrible. It is literally the worst I've ever felt in my life. I almost can't stand it.

Cashing out your exempt retirement account, and taking a 10% penalty plus paying income tax on the money, to pay bills, is throwing good money after bad. No one can count on their houses appreciating and being an investment in 20 years, especially in Michigan. (I live in Michigan so I know what the housing market is like here).

I too, did not want to file a chapter 13, so when I lost my job, I planned carefully and when my formerly high income dropped off the six month look back period, I filed chapter 7. There are many posters who will chime in on this thread as to the best way to get a livable chapter 13 plan.

If you are at the point where you are contemplating bk, then your cards are probably at the point where they are starting to raise your rates and lower your limits anyway. I would not assume that paying them off would preserve your credit.

[platter]

As for the attorney you spoke with...it sounds like he was at least trying to make you feel better and then on the other hand using those words to cajole you into filing now. Speak to others as Flamingo suggested.

I would definitely speak with a good doctor, even a psychiatrist if possible, because I think she/he would make a better choice as to which meds you need. Some give anti-depressents and one might give one specifcally for anxiety. Your thoughts definitely need to be slowed down and clear so that you can think straight and make a more logical decision.

[Pandora]

Agree 100% with all the others. Ch. 13 is not a prison sentence, if you havent ever budgeted then it will teach you how and to live within your means.

You answered all of your own concerns in reality - 1. bad idea about the 401K and 2. the attorney's you've spoken with said you're bankrupt already.

We understand that its not easy to file BK, no one really ever plans on doing so - I know we didnt, but life happens, people lose jobs, get sick, keep up with the Jones's - whatever... and well, here we all are. You need to stop looking at it as a "death sentence" and look at it as a learning tool and lesson to living within your means.

Think about how much money you're forking over to your creditors right now - the high interest rates, penalties, etc - do the math on how long it will take you to pay that off. Reality...you'll never pay it off in your lifetime. Saying the house will regain in equity and you can rebuild your retirement is something you cannot bank on. You need to look at the here and now - not "what could be" in the future. Right now you're bankrupt. Right now your house is negative. Right now you are not employed. Right now... right now... right now....

[AngelinaCatHub]

I want to cash out the 401k, badly. We have been warned that its the worst possible idea, but I feel we can re-build the retirement easier than we can re-build credit...AFTER the 5 years of Purgatory known as BK13 is up. besides, with the intention of staying in our house, the house itself should have lots of positive equity in 20-25 years, when retirment comes, even though the market is bad NOW and the equity is negative. Is this pie-in-the-sky thinking?

I think you get the idea about your terrible idea of cashing out an exempt item and YOU WILL NEVER recover from the loss of that money. WE DID THIS and still went under. What we did was sacrifice a good retirement for a Social Security retirement. We were worth a multiple of millions of dollars in land and assets. We are C7 survivors now.

Please let your pride go a bit. My Credit rating was 820. Anyone here on this forum beat this one? Not many. I do not use credit now, and we have adjusted well to our fate and accept better values than a credit rating and "stuff".

We were fortunate to retain our land in life estate and retirement planning but we cannot sell it, rent it, or get it back. But we do possess it. (until our death). That was not due to bk but to our life plan and on purpose. It worked well as my enemy caused us our cash flow in serial suits and then loss of career jobs (3) and then I got the big "C" with no medical. So stit happens and just because it is you and you are proud, hey, for the grace of God goes anyone these days. About credit ratings. I predict those will lose importance as the multitudes of people are forced into bk.

Housing will never return to an investment status. I can throw a stone and hit five houses in my area that are vacant and abandoned. I could buy any of them for a fraction of their once value (if we had any money). So please drop the idea of that 401K thing. It is tantamount to burning your money.

The anti depressant is a good idea. Please stay away from PAXIL. That is a real killer to shake. I use Elevil in the past. (ampatryptoline) and although not used much today, is a muscle relaxant as well as a serotonin inhibitor. It takes about three weeks to work and smooths your emotional level out, but does not make you a zombie person. Take it at night as a good side affect is it helps you to sleep. 'Hub

P.S. I use NO medicine of any kind now that I'm free of debt and intent on staying that way.

[momofthree]

Ch. 13 is not a prison sentence. You are allotted generous amounts for living expenses (groceries, clothing, household supplies, transportation expenses, medical, etc.) For example, a family of 5 is allowed $2411/mo for the expenses I just listed (more if you can prove the additional expense). You're even allowed to budget for recreation and such! Chances are, you'd have more money each month in a well-planned ch.13 than you do now! We didn't even claim IRS standards on our plan (not enough income) and we're still able to save at least $500 every month! As far as he government interfering in your life, that really is not the case. You do have to ask permission to take on new debt or to sell any assets worth more than $xxx amount, but other than that, you simply send in your payment each month and they leave you alone. It's really not much different than making a car payment or mortgage payment.

[HHM]

Please try not to duplicate your posts. But here are the responses from your other thread on the issue

http://www.bkforum.com/showthread.php?63721-Why-not-cash-out-401-k-to-head-off-BK

But let me summarize my comment from the other post...it is absolutely the worst idea to withdraw from a 401(K) to pay debt. UNLESS that would be the least expensive way of getting out of debt (which it almost never is).

[debee]

I understand your feelings about a 13 because I feel the same way. The prospect causes me so much anxiety I'd rather give up my assets than go through it. having said that, I agree with the others that you shouldn't cash out your retirement. The future is too unpredictable. You need to keep the money.

I don't know why your lawyer said you need to go 13. There have been other posters here who've heard the same thing and then gone on to another consult with a different attorney and discovered they could file a 7 after all.

I've read a case here where the attorney advised a two-income couple to deliberately become a one-income couple and wait six months (or longer) to file. You could post the numbers here to see if the forum members concur with your first attorney. There are members who get it wrong on the threads but there are lawyers who get it wrong too. Perhaps you are not in the corner you think you're in.

[LadyInTheRed]

A year before I filed, I took a $16k 401k loan to pay off debt. Not as bad an idea as cashing it out, but it is still one of my biggest regrets in life. I'm 6 months into my Chapter 13 and things are much easier now. I'm saving money every month and I don't go to work every day so I can pay off creditors. In addition to continuing to pay of the 401k loan, I'm contributing 3x as much to my 401k than I was a year ago (still not a huge contribution as I was only contributing 1% before). I'm underwater even on my first mortgage, but in 4.5 years, my $88k mortgage will be gone and I'll have more cash to contribute to my 401k. Between market increases and pay down of principal, I'm convinced there will be equity in my home in 25 years when I hope to retire, but I'm not counting on it. Good thing I can keep contributing to that 401k instead of paying creditors. If only I hadn't given Bank of America $16k for a debt that could have been discharged in BK. My retirement would look that much better!

Please get help for your depression and save your 401k for what it is meant for.

[alorth]

Thank you all very much for taking the time to reply...I am reading them all and appreciate it.

[kornellred]

I believe that there is one single instance where 401K loans (not withdrawals) work to a debtor's advantage in Chapter 13 bankruptcy. First - the loan must have occurred long before the decision to file for bankruptcy was made. Second - the loan amount must have been significant, with a prolonged payback period attached to it.
The loan payments subtract from disposable monthly income, which has the effect of reducing plan payments. The advantage is that the debtor gets to pay him or herself back, since you are borrowing your own money.
It appears that trustees are paying a lot more attention to 401K loan payments these days, and requiring that the loan payment amounts be surrendered to the Chapter 13 plan once the loan is paid off.
I cannot believe that my own trustee missed the fact that my loan payments stop before my BK 13 plan payments. I have the feeling that he simply chose not to take this into consideration. And, truly baffling to me is the seeming perception that Chapter 13 trustees have such wide latitude in the administration of their cases.