Our Friends Cashed Out Their 401K And Now Need to Walk Away From Their House. – Jody


“Dear Steve,

I’m asking for our friends. He has two part time jobs. She just got laid off from her job. They have cashed out their 401K and are paying off all their debts but the one thing that they are wondering about is their house. They are upside down in it because they got an equity line of credit and then used it all.

Can our friends walk away from their house? If not, what should they do? They will not be able to make the payments on their home and equity line so they will face foreclosure. Do they just wait for the foreclosure to happen? Thanks for your time!


Dear Jody,

Damn, I hate to hear about people cashing out their 401Ks to deal with debt. As long as the money was left in the 401K account it would have been safe from the creditors and reserved for what it was intended to do, be saved for retirement. With doubt that Social Security will be available for us when we get older, the only cash left will be what we save.

Cashing out a 401K to pay debts when there is no expectation that it will remedy the entire debt situation is not logical at best or foolish at worst.

They should wait for the foreclosure to happen and stay in the house as long as they can without making payments. As they get near the foreclosure date they can then look for a rental property to live in.

Here is a big hug for caring about your friends.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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