Borrowing Money From Your 401K
August 26, 2015
There’s so many questions when it comes to filing bankruptcy. Something different often comes up with each case, and it is our job to figure out how to deal with it. Just recently, we had a client who borrowed money from their 401K retirement plan to help pay for all of their bills, and there are some things to keep in mind when you do that.
First of all, when you borrow money from your 401K, you have to pay that money back, so it becomes a debt that you now have. What kind of debt is that considered though? Is that considered secured or unsecured debt? It may seem like it would be an unsecured debt, but it is actually a secured debt. Since it is considered secured debt, that means it cannot be discharged in bankruptcy. You cannot get rid of this debt you now owe back to your 401K, making everything that much more expensive for you in the long run, with the high interest rates and such that come along with it.
That may be a problem for you if you are thinking about filing for Chapter 7 Bankruptcy. Chapter 7 bankruptcy is a liquidation bankruptcy, meaning a wipe off of all of your unsecured debts. It is here for you when you can no longer afford to pay for all of this extra debt that you owe to all of these creditors. So if you end up borrowing money from your 401K, you will still have to pay that money back no matter what. How much sense does that make, right?
Who wants this extra debt from borrowing money from your own retirement plan?! It seems kind of silly, but that’s how it is. There are plenty of people who think that their 401K, or any retirement plan for that matter, cannot be saved in bankruptcy. They think they have to give it up or get rid of it. Well, that is most certainly NOT the case. An attorney who knows what they’re doing can most definitely protect your 401K, so that all of that money will still be there when the bankruptcy is over and your case is discharged. Jeffrey Randa has over 25 years of experience as a bankruptcy lawyer, and we will do everything we can to make your bankruptcy goes as smooth as possible. Protecting your 401K is just one of the many things we can do for you here at the Law Office of Jeffrey J. Randa.
People who think that their 401K cannot be saved in bankruptcy, will go ahead and just forget bankruptcy altogether and start taking money out of their retirement plan to help pay for their debt. We really advise you to speak with an attorney before you do anything crazy like that! By doing so, you are throwing all of your money right out the window. You might as well take all of your money, and light it on fire. In the end, borrowing money from your 401K retirement plan is just the way more expensive option. If chapter 7 bankruptcy can eliminate your debt, and save your 401K, it shouldn’t even be questioned that that’s the best option.
Call around and get other opinions, or call our office today for a free consultation right over the phone. We will answer all of your questions and do the best we can to help you in your financial situation.