Should I file for chapter 13 bankruptcy to save my house from foreclosure or my car from repossession or should I cash out my 401k to get the money to pay the mortgage or car payment? People ask me this question all the time.  Here is my answer: With few exceptions, I strongly recommend a chapter 13 bankruptcy reorganization over cashing out a 401k account with the purpose of staving off a foreclosure or preventing a vehicle repossession.

Here are the next five Forbes.com steps to help you boost your 401k:

• 5.  Taking loans out of you 401k is hard because many times you have to pay the money back.  But hardship withdrawals can be allowed.  If you are behind on payments such as your mortgage that would be a loan you would have to pay back but if your house was foreclosing you could be able to take out a hardship withdrawal.  Not everything is a hardship though so just make sure you know the rules.
• 4.  Many times if you make a lot of money you can only contribute a certain amount to your 401k as to prevent discrimination.  If your spouse has access to a 401k, they should be saving as much as they can as well.  If you or your spouse have access to saving for a 401k, take advantage of that especially if one of you has limitations on your savings part.
• 3.  If you have an old 401k account, you should combine the two in most cases.  Add the old account to the new; it is much easier to keep track of one account.
• 2. When you first sign up for a 401k you pick investments and many times don’t get around to changing, or revising it to make the best choice for your savings.  For example don’t just choose company stock because it’s there, don’t forget to revise your 401k and choose your best options.
• 1.Don’t cash out your 401k as soon as it is available to you.  Leave it as long as it is still invested in good options.  Just because it reaches the penalty free mark or you retire, doesn’t mean that’s the best time to cash out for you.

I might also add that under most circumstances you should not take a 401k loan or cash out a 401k or IRA to pay off federal income tax debt because you can almost always pay back the federal income tax debt interest and penalty fee though Chapter 13 bankruptcy reorganization, or often enter into a very reasonable tax repayment plan with the IRS.

If you have already taken out a big 401k loan or cashed out an IRA (or taken a large withdrawal or fully or partially cashed out a 401k) you really need to begin to rebuild.