Experienced, Compassionate and Effective Advocacy

How a 401k may help with debt relief

On Behalf of | Jan 8, 2018 | Bankruptcy

Virginia residents or others may find themselves in a financial emergency for any number of reasons. One way to possibly get out of that hardship is to apply for a 401k hardship withdrawal. A person may be eligible for such a withdrawal if he or she faces an emergency expense related to a medical issue or a home repair. It may also possible to qualify if making a payment will help the employee to avoid eviction or provides funds to pay for funeral expenses.

Those who are interested in taking a hardship withdrawal from their 401k should first see if their plan allows for one. It is also critical that an individual have no other way to pay for the expense. In some cases, the plan a person has will be stricter about how and when a withdrawal may be taken. Those who don’t meet the criteria for a hardship withdrawal may still qualify to take out a 401k loan instead.

The amount that a person may take out is limited to how much was contributed before returns are considered. Those who decide to take a hardship withdrawal may owe income taxes, and they may also forfeit the right to make contributions for up to six months after making the withdrawal. Removing money from a retirement account may also result in lost opportunities for compounding growth.

Filing for bankruptcy may have several benefits including offering relief from overwhelming debt. Individuals may be able to reorganize debt balances and repay them over three or five years. If there is a balance remaining after the repayment period ends, it may be possible to have that amount discharged. Other benefits of filing for bankruptcy may include a stay from creditor contact or other actions such as foreclosure or repossession.