Tips for Tough Times #2

In my last post I discussed a general strategy for going further into debt in the event of a crisis such as lost employment or major illness. I want to clarify that the intent is not to figure out how to “trick” the system; rather, the intent is to be shrewd in surviving tough times. While some folks will misuse the suggestions, my hope is that honest folks, who want and plan to repay their debt if possible once they get back on their feet, will use the information to plan for worst case contingencies.

Given that preface, another temptation to avoid during tough times is raiding retirement accounts to make ends meet. Much like the strategy of maximizing your homestead exemption, leaving retirement accounts intact maximizes your assets across a bankruptcy. In a Chapter 7, retirement funds, such as a 401k, are exempt and so you emerge after the discharge with your retirement whole. Taking funds out (unless you meet qualifying events such as age, etc.) not only converts exempt funds into non-exempt, but you will also likely incur a ten percent (10%) federal tax penalty for early withdrawal. So, if you have unsecured credit available to you during a crisis, it is best to use that resource to pay for necessities than dipping into your retirement.