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The current economic recession has millions of families falling into financial despair. Americans are considering bankruptcy at a nearly unprecedented rate. In addition, there is a growing consideration of a hardship withdrawal of 401k retirement accounts in a last effort to access cash necessary to meet financial obligations and possibly avoid a personal bankruptcy. However, the penalties and taxes charged for prematurely tapping these pension funds may be the least of the obstacles to negotiate before actually obtaining access to the much needed funds.

If one is considering withdrawing from a 401k account and filing for bankruptcy, it may be more beneficial to consider filing for bankruptcy before turning to the 401k retirement account. By law, the 401k retirement account is protected from bankruptcy and all creditors, as long as the money remains in the account before the 59th birthday of the account holder. Anyone holding a 401k account in these economic times should consider the following 1) what to do with the 401k account should changes in employment occur and during a bankruptcy filing and 2) what to consider should the funds within a retirement account come under immediate need during a bankruptcy.

Employees must consider professional management of their 401k in case of loss of employment or change of job as unemployment levels reach record proportions. Employers generally forward the retirement account holdings to the former employee after employment ends. The immediate experience of unemployment may place additional strain on a household’s finances and the temptation to access one’s retirement account early can become even more enticing. However, receiving cash from a retirement account prior to bankruptcy will appear as income and may make qualifying to file for chapter 7 bankruptcy more difficult. In addition, if the retirement account holder becomes unemployed and rolls over the 401k to an IRA or Roth IRA, then depending on the state, the retirement funds may become part of the bankruptcy estate and paid out to creditors. A consultation with a state-licensed financial advisor should be sought in all cases. Each state has differing laws on the bankruptcy estates allowable administration of certain qualified retirement accounts (non 401k) in a bankruptcy case.

If the use of the 401k account funds is needed after filing bankruptcy, the chapter of bankruptcy will determine the process to access the funds. Loans on retirement accounts are popular and allow the account to remain intact without incurring penalties or taxes on the account loan proceeds. Loans on 401k accounts are not able to be discharged in a bankruptcy, they must be repaid. If the loan on a retirement account is requested after a discharge of a chapter 13 bankruptcy, the loan must be approved by the court trustee. It is customary in all chapter 13 filings that any new debt incurred by the filer must be approved by the bankruptcy court trustee and addressed within the payment plan. However, after a chapter 7 bankruptcy is discharged, a retirement account can be collateralized for an un-penalized and untaxed loan or entirely withdrawn minus penalties and taxes, if premature withdrawal is applicable.

Retirement accounts are an often tapped assets as households endure a growing need for cash. However, enticements to access these funds should be avoided without proper consultation by state licensed financial or legal advisers to determine if retirement account plans qualify under the state’s law to become a part of a bankruptcy estate.

The decision to file for bankruptcy is a tough one for the homeowner, but a choice millions of Americans are making each day as a result of the collapse of the housing market. While contemplating bankruptcy, the major concern of the homeowner is what happens to the home after filing. However, depending on the choice of filing chapter 7 or 13 bankruptcy, the homeowner can decide the fate of the home.

A chapter 13 bankruptcy allows the homeowner to not loose the home. The chapter 13 bankruptcy will reorganize the homeowner’s debt and create a payment plan. The homeowner will be required to provide a financial plan to maintain the home loan, satisfy the court’s payment plan to meet past due balances and any other financial obligations. If a Chapter 7 bankruptcy is chosen, the home will be relinquished to the titled lender and a foreclosure auction will take place after the bankruptcy is discharged. Oftentimes, homeowners file a bankruptcy to stop a foreclosure and allow more time to weigh financial decisions which will decide their home’s fate.

The majority of foreclosed or bankrupt homeowners eventually buy another home after their financial ordeal is long behind them. However, a re-establishment of a financial profile must be planned and properly managed before homeownership is to be re-considered. By rebuilding a credit profile the bankrupt homeowner is evidencing financial responsibility, creditworthiness and increasing the likelihood of purchasing another home sooner rather than later. A substantial savings should be accumulated, as buying a home after bankruptcy may require a larger cash down payment. FHA offers low down-payment mortgage loans and will finance the purchase of a home by a chapter 7 filer in as little as 3 years. In addition, a chapter 13 bankruptcy filer can refinance their existing home out of bankruptcy, as long as there is enough equity in the home to pay the bankruptcy claim. Some private mortgage companies will finance home loans after bankruptcy is filed as long as the borrower can prove to be financially able to afford the mortgage and maintain cash reserves. Anyone considering buying a home after bankruptcy should be mindful that a sizable down payment and higher than market interest rates may be a requirement of the home mortgage.

Bankruptcy can offer the homeowner a way to keep their home when a foreclosure is threatening or allow a homeowner to walk away from their home and gain a fresh financial start. Congress is considering changes to bankruptcy laws to allow the bankruptcy judge to re-write the mortgage terms to meet the present value of the home and the homeowner’s ability to pay for housing. However, the decision to file for bankruptcy should be based on the homeowner’s honest ability to sustain all financial responsibilities and not with the emotional attachment to property.

California has suffered considerably over the last year after witnessing a 131% growth in mortgage defaults and foreclosures. The record foreclosure activity has taken a toll on the historically vibrant California real estate market. California experienced a nearly 38% decrease in home sale prices last year.

The area of California hit hardest by the nation’s housing collapse is the southern portion of the state. Los Angeles County has statistically suffered the most foreclosure activity with over 120,000 homeowners losing their homes last year to mortgage default.

Although interest rates are down and home purchase activity has increased, many exerts believe the worst has yet to hit the golden state. Alt-A and exotic Payment Option Adjustable Rate Mortgages are beginning to adjust as homeowners buckling down for another wave of massive foreclosures in the first half of 2009.

In a recent caucus by Congressional Democrats to discuss an economic stimulus plan, a former Labor Secretary said that homeowners should be able to write down the value of their primary residence in bankruptcy court. Currently, only leased investment properties may be devalued by the bankruptcy courts and re-amortized to meet the market’s current conditions and the borrower’s ability to pay.

The nation’s homeowners have seen their property values drop as much as 40% since the start of the economic decline nearly 2 years ago. Over a million homeowners lost their homes in 2007, while bankruptcy courts adjusted the mortgages, to an affordable level, on investment properties for real estate investors. Banks are steadfastly against such a measure in bankruptcy courts, but may agree if the measure includes financial assistance from the remaining $350 billion TARP bailout fund.

Last month, Chairman of the House Financial Services Committee, US Representative Barney Frank (D-MA), threatened to hold up allocation of any additional TARP funds if at least a portion of the funds were not used to aid defaulting homeowners

Expert financial analysts predict the world’s corporate earnings will continue to decline for a least the first half of 2009. Several financial management houses rated various industries and believe that Standard & Poor’s 500 will experience a 9% decrease in its earnings by mid year. Several top brands and companies have declared bankruptcy in 2008 and bankruptcy law firms are seeing an increase corporate demand for bankruptcy contingency consulting.

The energy and retail industries are expected to the hardest hit in 2009, with profits expected to decline by more than 20%. As a result of these industry losses the European and Asia markets will be driven further into an economic recession, titling this economic period the first time Europe, Japan and the US have simultaneously been in an economic recession since World War II.