Cashed out 401K pre-BK

[anonymuse]

Please, no one call me stupid on this one, but I had cashed out my 401K trying to keep up on payments of my cc's. Of course, I never thought in a million years I would be filing BK, and didn't know at that time that it would have been protected during a BK. (I know I'm not the only one to do this, so please don't slam me.)

My biggest fear with my BK is losing my house due to my borderline evaluation for having too much equity in my house. (When I could have done it, I sure wish I had transferred some of my student loans to a home equity loan since I was considering getting the tax break from there since I didn't qualify for the one from the IRS. But that's 20/20 hindsight.)

If a trustee doesn't like my valuation and says, I want to sell your house cause I think I can get $5K for the creditors from it, what would you say? Would it be wise to have my 401K statements there and show how the creditors already got a lot more than that from money I could have held? Or will they not give a hoot?

[9877donna]

Please, no one call me stupid on this one, but I had cashed out my 401K trying to keep up on payments of my cc's. Of course, I never thought in a million years I would be filing BK, and didn't know at that time that it would have been protected during a BK. (I know I'm not the only one to do this, so please don't slam me.)

My biggest fear with my BK is losing my house due to my borderline evaluation for having too much equity in my house. (When I could have done it, I sure wish I had transferred some of my student loans to a home equity loan since I was considering getting the tax break from there since I didn't qualify for the one from the IRS. But that's 20/20 hindsight.)

If a trustee doesn't like my valuation and says, I want to sell your house cause I think I can get $5K for the creditors from it, what would you say? Would it be wise to have my 401K statements there and show how the creditors already got a lot more than that from money I could have held? Or will they not give a hoot?

So sorry you learned a lesson the hard way.People who cash out their 401k's in an attempt to keep on top of their bills usually end up filing Bankruptcy anyway....and end up with no retirement fund.
My advice is make an appointment with a lawyer in your area for a free consultation.He can better answer your question about keeping your house.
There are homestead exemptions in every state and you need to speak to a lawyer about your concerns.
Maybe someone else can jump in and help answer your question...
Good Luck.
Donna

[JusticeForAll]

The Trustee can't make YOU sell your house. The Trustee can seize the house and sell it his/herself.

However, they bear the cost of the sale (legal, auction fees, etc). Highly doubtful they would go through all that if there is only $5k of non-expempt equity in the house. You would have to have substantial non exempt equity so that the sale of the house would cover all costs and leave some left for creditors.

[JusticeForAll]

Oh, and on the orginal question, I concur, they won't give a hoot what you've paid in the past, even if it was a from an account that would have been exempt.

[SinkingFast]

<< Raising hands to the Cashed in the Retirement Funds to Stay Afloat Club >>

You had your valuation done some time ago. Have prices gone up, down, or remained the same in your neighborhood?? Is the market moving or do homes just sit, sit, sit waiting to sell??

When you had the valuation done, did the Realtor note your "defects" as it were. If not, you could call some repair people in and get estimates to fix the things that need done. That right there would be hard copy documentation to ding the value of your home from the asking price you were quoted.

Plus, don't forget that you get to deduct all cost associated with selling along with your mortgage, to determine the amount of equity you really do have.

I agree that showing the Trustee how much other money you paid trying to avoid being in BK Court will have little, if any effect. I think it's much more likely that your Trustee is gonna haggle with you than sieze your house, Anon.

Remember, Trustees HATE to try to sell houses. They have to hire someone just like we would. Costs alone run about 10%.

And then there's time. Houses take longer than any other asset for the Court to sell.

AND, there's price. The Trustee probably won't get as much selling the house as you would in an owner/occupied situation. You would be selling a Home. The Trustee is selling a house. A BK Sale will bring out the same vultures as a Foreclosure Sale.

PLUS, the Trustee has to be sure the house will bring the Mortgage + Your Exemption + the Trustee's costs to sell + the Trustee's portion to line their pocket and then still have something left over to disburse to the Creditors.

$5K IMHO is a slim margin to work on when considering selling a house. I'm not saying you're safe. Just that I'd think long and hard before seizing your home if I were a Trustee. I'd rather haggle with you banking on you wanting to keep your home. Weedling some cold hard cash out of you would be easier than selling your home.

[anonymuse]

<< Raising hands to the Cashed in the Retirement Funds to Stay Afloat Club >>

You had your valuation done some time ago. Have prices gone up, down, or remained the same in your neighborhood?? Is the market moving or do homes just sit, sit, sit waiting to sell??

Lucky for me, nothing is moving. Four people took their townhomes off the market after 6 months with no sales. One home was on the market for over 90 days and then dropped the price $30K, and here it is over 90 days later and it hasn't budged. Their price is $20K less than anything has sold for in the last 2 years. (Note: They are in foreclosure and trying to do a short sale. The signs now say "Make us an offer".)

[lrprn]

Second hand up for "been there, done that" too.

My hubby also borrowed against his retirement - didn't clean it out but made a noticeable dent in it taking out six loans against his retirement over five years trying to keep us afloat before his financial house of cards collapsed and he had to fess up how bad things were. Worst of all for us now in Ch 13, wanting to pay back these loans have formed the basis for one of the two objections our trustee has filed against our case. We go to court Oct 5 to attempt to find a compromise and resolve the objection.

I only have one thing to say to anyone here who is thinking about cashing in even a small part of your retirement....DON'T DO IT! If things are that bad, make an appointment for a free consultation with a good bk-specialty lawyer instead and get an objective evaluation of your financial situation first.

[anonymuse]

I can only see one reason to cash out a small portion of my retirement--to pay the lawyer! ;) My lawyer accepts payments, but I feel like I'm never going to be able to save enough to file!

[SinkingFast]

I only have one thing to say to anyone here who is thinking about cashing in even a small part of your retirement....DON'T DO IT! If things are that bad, make an appointment for a free consultation with a good bk-specialty lawyer instead and get an objective evaluation of your financial situation first.

Amen to that Lrprn!!

I can't tell you how many attnys said, "Do you know how much money I could have saved you if you'd come to see me a year ago??!!"

And you know we had at least a dozen Consults!!

[ConnieS]

We too "dipped" into DH's IRA awhile back trying to keep things afloat for awile. Lot of good it did us, here we are still in a Chapter 7. If we only knew then what we know now................

[BassBoy]

I can kick myself in the rear end for taking a withdrawal from my 401K in order to catch-up the mortgage and such. It only prolonged the inevitable and not prevented it. I wish I would have known more then because I would have meet with an attorney about a year earlier and got rid of this mess.

People will take desperate measures in desperate sitautions. Knowing that we can keep the creditors happy and off our backs is a warm welcome.

[spongenotbob]

I can kick myself in the rear end for taking a withdrawal from my 401K in order to catch-up the mortgage and such. It only prolonged the inevitable and not prevented it. I wish I would have known more then because I would have meet with an attorney about a year earlier and got rid of this mess.

I did the same thing. Wasted > 50% of my 401k. Ah well, you live, you learn.

[debtisbad]

I am fessing up. I did the same. Now I am scared sh*tless about what I am going to do in my old age. Seems there are lots of us. I talked to someone the other day who told me she had done the same after loosing her job.

[possumfat]

we have all done thinking its the right thing to do. I got bad advice from my lawyer about cashing one in and now the trustee to in the process of trying to get some of it back from the credit card company. I should have filed in 2002 when my business failed instead of dodging the creditors for three years.

I have lived and learned and am still learning.

[razorguns]

The new BK laws are much tougher. It's not unusual to see more and more people having problems trying to get discharged. Under the old laws, everyone was getting it. You can thank corporate america for rewriting those laws and new procedures for trustees to follow.

r