I Spent All My 401 K Funds And Now My Creditors Are Suing Me. – James

“Dear Steve,

In 2007 I was forced to leave my job because of my health. I was 55 and luckly I had a small pension to live on. I had 50,000 in credit card debt at the time. I continued to make all my payments with my savings and 401 k funds for 3 years until I was out of money. In 2010 I stopped making payments to my creditors. And now I am getting letters from lawyers wanting me to pay them. I don’t own a house and I have a car that I am making payments on, no real assets except the normal furniture and clothing items.

My question is one of the lawyers is taking me to court soon and I am wondering what will happen if I do not show up. I don’t have the money to hire a lawyer myself or to file bankruptcy. Can they take my pension in a judgement. Is there anything else I should worry about?


Dear James,

Well let’s use this as a lesson for anyone else that might be facing a similar fate. The lesson to be learned here is that spending down your retirement funds or assets without a game plan just leaves you broke and in the same spot.

The irony is if you had filed bankruptcy early on you would have been able to keep and protect all that 401K money that was spent.

At this point your creditors can sue you, go for a judgment and hope that you obtain some assets in the future. The judgment will earn interest and depending on where you live it could last for a long time.

If you don’t show up to defend yourself you will lose. But what’s the defense?

Generally if the pension was from a defined benefit plan then it should be protected. When you can, the most logical thing to do at this point is to file bankruptcy to close the door forever on this past debt. Otherwise, don’t be surprised if you get collection calls on this debt as the creditor attempts to collect on it after the suit.

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Please post your responses and follow-up messages to me on this in the comments section below.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Damon Day - Pro Debt Coach

Steve Rhode

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