After out-of-work husband runs up $30,000 on his wife’s card, his wife wants to know if her 401(k) can be tapped for repayment
Dear To Her Credit,
I had a credit card on which my husband was the authorized user. He was laid off and needed funds to start a business, so without my knowledge he used my zero balance card and ran it up to $30,000 within a few months. The interest rate is 21 percent. Now he can no longer pay the payments, and Chase is calling me. I cannot afford to take over the payments. I am the only one currently with an income and am trying to keep our home bills paid. The account is closed and is now in collections. If I am taken to court, is my 401(k) plan in jeopardy? I had hoped to retire within a year. Please advise, I do not know what to do. My credit has always been excellent until now. — Della
I’m sure you’ve had this discussion with your husband, but nobody “needs” to use $30,000 they don’t have to start a new business after they’ve been laid off. We all take risks in life, but they should be measured risks — not jumping-off-a-cliff risks.
The good news for you is that the credit card company cannot seize funds from your 401(k) plan. Under federal law, judgment creditors can’t go after money in an Employee Retirement Income Security Act (ERISA) qualified retirement accounts, which include 401(k) accounts. Don’t be tempted to raid your retirement plan to pay off this debt. Retirement funds are for retirement. Keep them safe where they are.
Note: Non-ERISA plans, such as IRAs, are also generally safe from creditors, however state laws vary. Seek legal advice in your state if you’re not sure whether your other retirement funds are protected.
If you think your husband may find work soon, the best way to deal with this debt may be to communicate with the credit card company and ask for a hardship plan based on your husband’s unemployment. They may agree to reduced payments for a time. That’s a better deal for them than having you declare bankruptcy or simply give up on paying.
Another option is to negotiate down the debt with the credit card company. Settling to pay less than what you owe will lower your credit score, but it may help you get out of debt in a reasonable period of time. You can negotiate debt yourself — there’s no need to sign up with a debt negotiation company.
I don’t recommend bankruptcy for a $30,000 debt, especially when two people are still in their earning years. You and your husband would be better off paying the debt or negotiating it, even if it means delaying your retirement, than going through the stress, expense and trouble of bankruptcy.
One other thing I would recommend is that you check all your other credit cards and make sure they have reasonable limits. You can ask to have limits reduced or close credit cards that you no longer need. Lowering your total available credit will probably lower your credit score in the short term, but I’d consider that a small trade-off for also lowering your husband’s temptation to get the two of you further into debt.