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Depending on the terms of your 401(k), you can generally pull money out early, but must keep in mind (1) that there will likely be a tax penalty and (2) that while the money is still in a 401(k) it is usually protected were you to file for bankruptcy. Consequently, a better alternative may be to look at a chapter 13 bankruptcy repayment plan. Often, debts can be lowered considerably and the repayment rate set at sometime affordable to the individual, and protects equity in a home at the same time.
So if i pulled money out early it will not qualify as a hardship?
I also thought they would come after my house in a repayment plan.
That would depend on the terms of the 401(k) plan itself, generally the plan sets the terms for a hardship distribution. It is important to keep in mind that once a hardship distribution has been made, a contribution back in to the plan generally cannot be made for at least 6 months.
As for a chapter 13 repayment plan, generally no, the point is to have the debts paid down instead of liquidating assets to repay creditors. That is one of the primary differences between a chapter 7 and a chapter 13, under a chapter 13 payments are being made and assets are generally protected.
Actually i made a mistake this is an IRA i'm talking about. When I was laid off 2-years ago from my job i rolled it over to an IRA. Where can i find the laws regarding IRA distribution?
In many ways chapter 13 was designed to help people pay down debt while still protected assets that they have. No system is perfect, but generally under a chapter 13 plan major assets such as a home are car are not at risk.
The Internal Revenue Service (IRS) has a pretty good FAQ on distributions from an IRA at:
Do things change since we are talking about an IRA vs an 401k
Okay, I think I understand. Thanks for your help.
Possibly, generally hardship distributions are not an issue for an IRA, the person holding the IRA can make a withdrawal, although tax penalties are more likely to be an issue.
You are welcome, it has been a pleasure chatting with you. If you do not have any further questions, please remember to RATE my answer so that I can receive credit for my work. Also, before making any decisions I would strongly encourage you to sit down with a bankruptcy attorney in your area of California, so that at the very least you have a thorough understanding of the pros and cons of a chapter 13 bankruptcy (I believe that a chapter 13 may be a good option for you, but it is important to sit down and talk with an attorney licensed in your state in person before making any decisions).
Let me know if you need any additional information. Otherwise, please remember to RATE my answer so that I can receive credit for my work.
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