Creditors CANNOT GET IT.
What could be better than tax free savings? Why, tax free savings that creditors cannot grab.
Yet, one in four American workers with a 401(k) account borrows money from it. To do what? Pay bills, what else.
If you need that money for living expenses, stop contributing to the 401(k), at least until you get to where you have EXTRA income that you can afford to save.
And many of these folks end up in bankruptcy.
I had another person call me this week, who had drained his 401(k) account in a vain attempt to keep his underwater house.
We humans make decisions based on our emotions. We do what makes us feel good. We avoid what makes us feel bad.
But we need to take the long view on these things.
This poor guy had a home worth maybe $100,000 that he owed almost twice as much in mortgage debt
He is losing his house anyway. When his income went down to where he could not afford the mortgage payment, he started borrowing the 401(k) money.
Now he will be out both that 401(k) money, and his house.
Some folks say, DON’T FILE BANKRUPTCY! CASH OUT THAT 401(K).
I say: BALDERDASH!!!
He may have to file bankruptcy anyway, to get rid of the deficiency on the mortgage. In Michigan, the mortgage company can bid LESS than what is owed at the foreclosure sale, and chase you for the difference.
He could have filed bankruptcy while the 401(k) account was still full, and discharged his personal liability on the mortgage note.
He also could have called me when he got the initial foreclosure notice. He missed requesting a modification, which would have bought him an extra three months in the house, for nothing.
Hey! Call me. Its free.