In this episode of The Georgia Bankruptcy Podcast, I discuss why borrowing against your 401k to avoid bankruptcy is a terrible idea. We'll explore the risks involved, the impact on your financial future, and why it might not be the best solution for your debt problems. 

Tune in to learn about safer and more effective alternatives that can help you navigate financial challenges without jeopardizing your retirement savings. Don't miss this crucial advice!

One way to tackle the debt is chapter 13. Another way is chapter 7 and eliminate it. Not sure what you might qualify for. You got to talk to us. We've got to look at your paycheck stubs. We've got to look at your assets in order for us to determine that, we've got to spend some time together analyzing the situation.

But, you know, again, it's a bad idea to borrow against this protected asset that your creditors can't touch and now you've turned it into something that possibly they can't.

Jeff Kelly: Hello, this is Jeff Kelly. And in today's video, I want to talk about, should you borrow against your 401k to avoid bankruptcy? First of all, let me just say that is a terrible, terrible idea. Why is it such a terrible idea? Well, first of all, almost every single client who calls me, they are suffering from tremendous financial strain.

So taking all the debts and consolidating them into one single payment that Is going to take money out of a 401k. That's usually not going to reduce the financial strain or the stress. In fact, it might increase the financial strain and the stress. And let me go over why? Okay.

Your creditors can't touch it. can't garnish it. They cannot seize it. Why in the world would you want to take this protected asset and put it in danger to satisfy credit card debt, medical debt, debts that we could take care of and possibly eliminate and take strain off of you in a chapter 13 or chapter 7. Why would you want to do that?

So, that's why another very important thing to consider is when you've got a 401k loan, What happens if you lose your job and you get to a place where you can no longer pay this 401k loan, what's going to happen? Well, what happens is you have to default on the loan.

When you take money out and you default, those tax penalties are not good. And not only are they not good, but they're not dischargeable in bankruptcy. So you just took debt that I could eliminate in a chapter 13 or chapter 7, and you have transformed it into debt that I cannot eliminate.

So don't borrow against your 401k. It is a bad idea to rob Peter, to pay Paul or to rob your retirement to pay Paul. It's not a good plan. It's not a good idea. Don't do it. You know, come talk to us, Let's, explore all of your options. You know, another thing to consider when you borrow against your 401k, every dime that you're using to pay back that loan, that could be going toward your 401k contribution.

Unfortunately, most people take this action before they talk to me. You should never Ever, ever view your 401k as an emergency fund. And that's another problem. There's, you know, a lot of people, they just borrow here, borrow there, borrow here, borrow there. You're limiting the future growth of your retirement.

You're limiting your future by treating your 401k as an emergency fund. It is not an emergency fund. What you need to do is, you know, take care of all the debt and get to a place where you truly can establish an emergency fund, a savings account that never gets touched for anything. But get to that place, you got to tackle the debt.

But, you know, again, it's a bad idea to borrow against this protected asset that your creditors can't touch and now you've turned it into something that possibly they can't. I've seen people who borrow against their 401k and they'll put a whole bunch of money in their savings account and then come to me to file bankruptcy.

The goal is to get you to a place where you don't have to worry about debt, where you don't have to worry about creditors calling you and harassing you. And we can get there. We can do it. But in order to do that, you got to give us a call. We got to review your paycheck stubs. We got to review your assets.

We need you to fill out some paperwork for us. We need to spend some time together. Yeah, it's not fun but borrowing against the 401k, not the answer. And if you're ever tempted to do this, to, you know, get a loan and get a family member to co sign with you, I'm going to need to do a video and a blog post on that separately.

Don't do that either. Don't take your debt problem and make it 10 times worse trying to avoid bankruptcy. If you need to file, give yourself some grace, do it. You know, get this thing off of you so that you can move on to a bright and better future.

com slash welcome and subscribe to our email list to have a guide to bankruptcy in Georgia, helping people get out of debt delivered right to your inbox. Now back to the show.

Jeff Kelly: If you're interested in learning more about Chapter 13 and Chapter 7, I've got a website, KellyCanHelp.com, K E L L Y C A N H E L P. com. I've written a book on Chapter 13 and Chapter 7. You can download your free copy.

I've also got lots of videos on my YouTube channel and on my podcast website, KellyBankruptcy.com. You can download any of our old episodes there as well. I would strongly encourage you to educate yourself.

Grow it to your maximum so that you can have a bright retirement future. Thank you for tuning in today.

Narrator: Thanks for joining us this week on the Bankruptcy Podcast. Make sure to visit our website, kellybankruptcy. com, where you can subscribe to the show in iTunes, Spotify, or via RSS. So you'll never miss a show. While you're at it, if you found value in this show, we'd appreciate a rating on iTunes. Or, if you'd simply tell a friend about the show, that would help us out too.

If you liked this show, you might want to check out our guide to bankruptcy in Georgia. Helping people get out of debt. Available at kellycanhelp. com slash welcome. Be sure to tune in next week for our next episode.