Many people come to see a Bankruptcy lawyer after a number of months of even years of fighting to make it through a tough time hoping that they can pay down their debts and get their finances back in balance. A large number of these draw funds from a 401K or other tax deferred account, to pay down debts to the point that they are “manageable” but still cannot make ends meet. Using a 401K to pay off debts is, possibly, the least appropriate way to handle debt. First, Congress wants you to keep your retirement funds in place. 401K accounts are exempt from the claims of your creditors. In other words, someone suing you for money, or a Bankruptcy Trustee, cannot compel you to turn over a properly established 401K that has been funded in due course over a period of time. Second, most current problems with debt arise from a limited number of circumstances. Understanding how you got into debt is actually more important than paying the debt because your discharge in Chapters 7 or 13 will discharge you from any magnitude of debt. In other words, the law does not distinguish between discharging $100 or discharging $1,000,000. This means that until you truly understand HOW you got into debt, and you are certain that you have finished INCURRING DEBT, you should not throw good money after bad by trying to put a band aid on a bleeding artery. Paying debt is always a laudable thing. Debt is enslaving, stressful, and unattractive. The pressure to pay debt comes from our parents, community, promises and sense of right and wrong. But, it may be that impairing your future comes at a much greater cost than the cost of filing for bankruptcy. There are precious few circumstances where a Bankruptcy Attorney will advise the use of exempt retirement funds to pay debt.