You should not use your 401k to pay credit card debt. You will lose more money than you will gain because of the 10% penalty the govt. charges for early withdrawal.
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It is typically good advice to state that you should not withdraw monies to pay down credit card debts, becuase there may be income tax due and a penalty as well, both from the IRS and NYS. If you file for bankruptcy, these types of assets would be likely protected from creditors and you might be able to wipe out the credit card debts. That said, you might ask if you could borrow against the account, as some of them have 5 year repayment plans.
401k money is exempt in bankruptcy. Unless your credit card debt is minimal I wouldn't suggest using 401k money to pay it down as you will eventually need the money for your retirement. A ch 7, all things being equal, will eliminate the CC debt and you can keep your retirement nestegg. See a bk atty for evaluation.
Dear Mr. Santiago, one of the biggest mistakes that some of my clients have made is having used their 401k monies to cover debts of creditors before they come to see me. Your 401 K plan is one of the few assets which is generally exempt from creditors. So, essentially, what you would like to do is make assets (that would normally not be available to your creditors) available, which is not recommended. If you have a significant amount of credit card debt and your income is not above the median income in NY or is above (but you have secured debt, such as a car loan and mortgage to pay), you may qualify for a chapter 7 bankruptcy. Generally, this would enable you to keep your entire 401K plan and discharge all of your credit card debt.
Best of Luck to you,
Barbie Lieber, Esq.
Lieber & Lieber, LLP
60 East 42nd Street, Suite 2102
NY, NY 10165
The foregoing is not intended as nor does it constitute legal advice and no attorney client relationship has been created