In desperate times, what's best — bankruptcy or cashing out a 401(k)?

Unemployment, credit card debt and caregiving are among the many burdens Americans face today. Now imagine you had to deal with all three at once. The national unemployment rate stands at , but your age, skill set and geographic area all affect how easily you can find work.

Total credit card debt among all Americans is also at a record high of , as of the second quarter of 2024. Many in the U.S.



also take on the responsibility of caring for an aging parent, some of whom have limited savings and income. Commercial real estate has beaten the stock market for 25 years — but only the super rich could buy in. Here's how even ordinary investors can Car insurance premiums in America are through the roof — and only getting worse.

But 5 minutes could have you These 5 magic money moves will boost you up America's net worth ladder in 2024 — and you can complete each step within minutes. These put a lot on a person's plate. If you're and coping with all of these issues, you may want to explore your options.

Bankruptcy could be one of them, but you may also be considering a withdrawal from a 401(k) account. Bankruptcy seems like a desperate solution, and it often is one. It can remain on your credit report for a decade if you file for Chapter 7 bankruptcy or for seven years with Chapter 13 — you may have heard of Chapter 11 bankruptcy, but this is primarily for businesses.

You'll have a hard time getting approved for loans, may pay more for insurance coverage and may not find landlords eager to rent to you with a bankruptcy history. However, there's a reason bankruptcy laws exist. Consumers sometimes reach a point when they have so much debt relative to income that there's almost no way to dig out of it.

If a person's payments only barely cover the interest they could potentially be in debt indefinitely. In this situation, continuing to pay just throws good money after bad. What's more, if you try to avoid bankruptcy by cashing in a , you may make your long-term financial situation much worse.

An employer-sponsored 401(k) is so creditors can't take the funds and there's a good reason for that. These accounts are crucial to financial security as a senior. Cashing out your 401(k) early may also compound the problem.

There's a 10% early withdrawal penalty if you take money out before age 59-and-a-half and you'd also be taxed on the distribution as ordinary income. You may not have enough to fully repay all you owe, especially after accounting for taxes and penalties, and would still be struggling. Plus, you'll lose out on potential investment gains.

Car insurance rates have spiked in the US to a stunning $2,150/year — but you can be smarter than that. (it's 100% free) Before taking the drastic step of either declaring bankruptcy or cashing out your 401(k), you should explore other options first. In some cases, if you're caring for an older family member you can qualify for payments as a family caregiver through Medicaid.

Your older loved one may also be eligible for Supplemental Security Income to help the household if income is limited. These programs could provide some breathing room to start paying down your debt. You may also be able to better manage your debt by talking with your creditors about debt settlement or a payment plan.

If you're behind on payments and creditors know you're at risk of bankruptcy, they may be inclined to work with you. It's not recommended to use a debt settlement company in many cases. The says these outfits commonly charge high fees and under-deliver.

Instead, call your creditors to tell them you're struggling and find out what options you have. Unlock access to 4,700+ hand-picked, single-family homes across America — and the juicy rental cash they can generate. 82% of Americans are missing out on a savings account that pays over Rich young Americans have lost confidence in the stock market — and are .

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