QUESTION
Can we use a 401K to prevent foreclosure and bankruptcy?
Asked on Jul 13th, 2011 on Bankruptcy - California
More details to this question:
Can we use our Vanguard 401k to pay off a $3500. second mortgage so that we can do a deed in lieu to prevent foreclosure and bankruptcy.
10 ANSWERS
Bankruptcy Attorney serving Cleveland, OH
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Benson Law Firm
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Yes. But remember that your qualified 401k funds are 100% exempt should you decide not to go that route and that withdrawn 401k funds are taxed fairly heavily. -
Answered on Jul 15th, 2011 at 12:14 PM
Trusts and Estates Attorney serving Jacksonville, FL
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Law Office of David M. Goldman PLLC
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You can, but it may not be wise or the best use of a 401K fund that is protected from creditors. You should discuss this with an attorney to determine your options
Answered on Jul 15th, 2011 at 12:12 PM
Bankruptcy Attorney serving Hayward, CA
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Carballo Law Offices
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Yes but you will have to pay taxes on the 401k withdrawal and maybe a penalty if under a certain age. A deed in lieu of foreclosure has to be accepted by the bank and it may not be accepted. Usually banks will not accept deeds in lieu of foreclosure. There is no personal liability in California for a deficiency after foreclosure if the bank forecloses by nonjudicial trustee's sale and in almost all cases. There is also no deficiency after foreclosure if it is your personal residence. A deed in lieu damages your credit just like a foreclosure, short sale and bankruptcy. You really need to consult with a bankruptcy lawyer to explore the options. The lawyer needs to know your entire financial situation to advise you as to the best option in your case.
Answered on Jul 14th, 2011 at 2:55 PM
If you're using a 401(k) which should be a nest egg, for the purpose of preventing foreclosure, you probably have more issues going on in the bigger picture and bankruptcy might be a better solution.
Answered on Jul 14th, 2011 at 2:15 PM
Why? The money in the 401k is exempt from judgments, bankruptcy, attachments, etc. If you are giving up the property anyway, save your money and do a short sale.
Answered on Jul 14th, 2011 at 1:58 PM
Information provided doesn't create an attorney/client privilege nor constitute an offer of services and is only general responses to hypotheticals
Samuel Lee Tucker
You should be able to withdraw funds from your 401k. There will Likely be penalties and taxes due. The remaining elements of your question need clarification. A deed in lieu results in dispossession of your house in the same way a foreclosure does.
Answered on Jul 14th, 2011 at 1:03 PM
Bankruptcy Attorney serving Concord, CA
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William Rubendall Attorney at Law
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If you are going to access your 401k for a non-retirement purpose you should consider the consequences, including tax impact. Also consult with an accountant, preferably a CPA, as to tax consequence of giving up you property.
Answered on Jul 14th, 2011 at 1:00 PM
Bankruptcy Attorney serving Herndon, VA
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Maureen O'Malley
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This is actually a huge question. First, there'll be hefty tax consequences to using your 401. Second, a Deed in Lieu is just as bad as a bankruptcy.on your record and is very hard to get the bank to agree. What about other debts? You might be able to step the 2d in a Chapter 13. Bankruptcy is not only not the end of the world, it's a veritable life-saver in some instances. Please go see a Bankruptcy attorney for specific guidance.
Answered on Jul 14th, 2011 at 12:49 PM
Glen Edward Ashman
That sounds like about the worst thing you could do. Why would you consider it? First of all, few lenders accept a deed in lieu. So you probably get foreclosed on anyway. And drawing on your 401K is frankly dumb. First of all you pay penalty taxes, so at least 40% of your withdrawal goes to the IRS. That means you have flushed 40% of your retirement down the toilet. Second, if you file bankruptcy instead of doing this you can wipe out the house, and KEEP the 401K. And if you are already facing foreclosure, your credit already is poor, so you may not even hurt your credit much with a bankruptcy. See a bankruptcy lawyer to compare his ideas with yours.
Answered on Jul 14th, 2011 at 12:33 PM
Bankruptcy Decision Attorney serving San Diego, CA
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Law Office of Daniel G. Shay
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Yes, you can if you want. But, I urge you to consider a Chapter 13 Lien Strip to forcibly remove the 2nd mortgage. At least try to settle the 2nd for half of what is owed in return for release of the lien.
Answered on Jul 14th, 2011 at 12:29 PM