Does it sound like bankruptcy is the best solution? Or should I clean out my 401K

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Does it sound like bankruptcy is the best solution? Or should I clean out my 401K

I have a lot of old debt. I just received a phone call from a Law Office about a debt I lat paid in 10/06, which is now at somewhere over $14,000. They want me to make a settlement, which I don’t have the money to. They want me to clean out my 401K in order to stop litigation on this account. Any advice?

Asked on May 19, 2009 under Bankruptcy Law, Florida

Answers:

B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

You should definitely talk to a lawyer in your area, before you respond to the creditor's lawyer, take money out of your 401(k) or file bankruptcy.  There are listings of qualifed attorneys in a number of places, including our website, http://attorneypages.com

There is a penalty you have to pay on early withdrawals from a 401(k) account, and the money is taxable income, also (since you didn't pay income taxes on that money when you earned it, this is one of the reasons for retirement accounts in general).  If you file bankruptcy, that ordinarily brings lawsuits against you to a stop until the bankruptcy is involved, although there are exceptions to that.


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