I’m in Law School But Considering Bankruptcy. – Jenni

“Dear Mitch,

I am 40 years old and work as a land development consultant. I don’t have to explain what has happened to land development in recent years. I used to make 63k/year with a 15-17k bonus every year. I now make $40k/year with no bonus.

My husband’s small business has struggled and drained all my savings. I have 38k in cc debt, 111k left on my mortgage (for a home that is devalued down to 129k) but a 30k home equity loc (interest only) which completely went to my husband’s small business.

My husband and I are now seperated and he cannot help with daycare for our one child which is about $840/month. I am currently in law school part time while working fulltime. I know there is light at the end of the tunnel.

We are seeing an increase in workload slowly over the last year. This law degree will help me get a different position in land development/real estate with more money. But currently the math is not working for me.

I make far less than I pay out every month. I took out a 22k loan on my 401k and still have 4 years left to pay that back and it is nearly gone. I am on a scholarship to law school and was taking out loans to help me with living expenses. I am at the end of the line with my robbing peter to pay paul plan. I feel like if I could take 20k out of my 401k not as a loan but just take it out, I could get rid of 4 of my 5 credit cards and reduce my montly cc payments from 1,200/month to around $350/month. And reduce my stress. And increase my sleep.

I have a huge problem with bankruptcy. I took the money from the cc with the agreement to pay it back. I have to pay it back. But I also realize that if I dont have the money, I don’t have it.

I am also concerned about the effect bankruptcy will have on future student loans (I have about 2 years left) not to mention jobs.

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Do I have to tell the bar about the bankruptcy? Knowing there is light at the end of the tunnel, I fee l strongly that I will be getting a bump in pay in the next few months (not sure how much though) and I also am confident that when I finish my JD I can get another job working in land development for more money.

Knowing this, I feel strongly that I can double up my efforts to save more money for my retirement-eventually. I know how important retirement savings is and I don’t take lightly the idea of taking it out. I know all the experts say leave it be no matter what but I feel like bankruptcy may have too many other repercussions and that I have the potential to save for retirement when things are better. I am optimistic. But losing sleep anyway. Any advice will be greatly appreciated.

What do I do? Are there ever any instances of the experts saying that taking money out of a retirement account may be a better option to the negative repercussions of bankruptcy?


Dear Jenni,

I never advise anyone to take money from a 401K because not only does it reduce your retirement savings (usually, you cannot put money in for 6 months after a loan or withdrawal), but also it can cause tax issues. If it completely solves the problem, that may be worth the risk, but that is rarely the case and it does not appear to be the case here.

Your concern about student loans and your credit is not an issue. Student loans are based on need and not credit. Besides most students have no credit and they can still get loans (I will save any commentary on this).

If you file for bankruptcy, you will have to report this to the Bar when you apply. Keep in mind that many people have filed and have still been admitted. As long as your issues do not involve fraud, failure to pay child support or failure to pay taxes, you should be fine. You might want to pose a hypothetical question to the Bar or ask an attorney friend to call the ethics line (again hypothetically) to relieve yourself of that stress.

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Focus on your studies and your job. Negotiate where you can and manage the rest. If you can’t talk to a local consumer law attorney or truly non-profit credit counselor (many schools have someone on staff) for help.

Good Luck, You have lots on your plate.

Mitchell Goldstein is an attorney licensed in Virginia. His practice focus is consumer bankruptcy, mortgage and debt defense and technology issues. He is a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA) and National Association of Consumer Attorneys (NACA). His goal is to educate people with solid advice and give guidance to consumers to help them made decisions that impact their financial well-being.

Legal Disclaimer: This is for educational purposes only. It is not to be relied upon as legal advice. It also does not create an attorney-client relationship. No such relationship is formed with attorney without a written agreement.

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