If you are suffering from too much debt, please talk to an experienced bankruptcy lawyer before you make any major decisions with any of your money. For instance:
DO NOT SPEND DOWN RETIREMENT ACCOUNTS TRYING TO PAY OFF DEBT! TALK TO A BANKRUPTCY LAWYER FIRST!
If you have a lot of debt, you may try to “do the right thing” and withdraw funds from a retirement account to pay off your creditors. You may even draw down all your retirement accounts to try and pay your creditors. Unfortunately, even after these efforts you may still have to file for bankruptcy!
If you are in a situation like this, please get some pre-bankruptcy advice and strategy. In most cases federal bankruptcy exemptions will let you keep your retirement accounts. Therefore, you can file for bankruptcy before spending down your retirement funds, get to keep those retirement funds, and the bankruptcy will take care of your debt.
Also, if you withdraw retirement accounts too early, you can be penalized on top of having to pay taxes. There are no tax implications in filing for bankruptcy.
In conclusion, get some advice from an experienced consumer bankruptcy lawyer before you make any financial decisions about your debt. In this example, filing bankruptcy (and not withdrawing any retirement funds) can take care of your debt problems, while keeping your retirement accounts intact, and it will save you on taxes!