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Can I do a hardship withdrawal to pay off debt so I can afford my house payment before I lose it to foreclosure?

Washougal, WA |

I owe 25k of consumer debt. Paying this off would free up the money I need to make my home payments. I am in the middle of a loan restructure to avoid foreclosure. I have been served with foreclosure papers and will do anything need to keep my home.

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Attorney answers 3


If you are referring to withdrawal from a qualified retirement account, you should consult with your HR department counselors and a tax adviser to make sure this strategy does not cost you more than it is worth. It is possible you could discharge your obligation to unsecured creditors through bankruptcy protection thereby freeing up your income to pay the mortgage. If filed timely, a bankruptcy petition will stay the foreclosure proceedings and give you a chance to get back on track with the mortgage. Money in retirement accounts is usually exempt and protected from creditors. If the money is withdrawn, you lose the exemption, you may incur tax liability, and you may not be able to stop the foreclosure if you use the money to pay unsecured creditors. Please consult a bankruptcy/consumer debt attorney before deciding on a plan of action.


I agree with atty Tucker. Before exposing yourself to a possible penalty and tax issue, talk with your employer's HR department. Next, consult a bankruptcy attorney who can give you useful information on how to use the protection of the bankruptcy process to eliminate your unsecured debt, complete the loan modification and get a fresh financial start.


I would agree with my colleagues. The penalties may make it not quite so attractive as you may think.

My answer is general information not intended to create an attorney-client relationship. Seek advice from a qualified attorney to see how the law fits your specific facts. If you are in Washington, please feel free to contact us at (425) 283-0432 to see if we might be of assistance.