No. First of all, if you are considering this kind of asset liquidation, consider that your 401k / IRA is your retirement that you have saved for you. Despite calls from some of our ‘leaders’ in Washington, DC, for ‘personal responsibility’, the truth is that our government has not been fiscally, nor ‘personally’ responsible with it’s finances. This is especially true as it relates to the impending implosion of the Social Security system, as a whole. You will need every last penny of your retirement savings. It is sheer folly to jeopardize those funds to save ones credit.

Second of all, in many states, some or all of an IRA is ‘exempt’ and protected from the reach of the Ch. 7 or Ch. 13 Trustee. This means that you can likely keep your IRA account. Te be sure, you need to speak with competent consumer bankruptcy counsel, to examine your state’s exemptions, and depending on whether you moved recently, the exemptions from the state you moved from. As to 401k plans, yes, they have dropped significantly in value, and it is tempting to stop the bleeding and cash out. Don’t do it. A 401k is a long term investment, that is designed to absorb and even take advantage of, dips in the market. If you cash out when the account has lost value, you have guaranteed a loss, whereas, if you continue to contribute, income averaging will smooth out the losses over time. Think long term. But more importantly, 401k plans, if they are ERISA qualified, are also outside the reach of the Ch. 7 or Ch. 13 trustee. It matters not whether you have $1.00 or $100,000 or more, all if it is protected. This is the ultimate reason never ever to cash out a 401k to stave off an inevitable bankruptcy filing.

San Diego Bankruptcy Attorney, John C. Colwell

Debt Relief Legal Clinic