Deficiency balance from short sale of 170,000. Settle or BK?

Your credit is already trashed. Save the money you would spend on bankruptcy for the moment ... somewhere they'll have a hard time seizing it. Down the road you can probably settle this for ten cents on the dollar. BK is the "smart bomb" from the old "Defender" video game. Don't play that card unless and until something dire happens.

You probably should not take money from your retirement nest egg to pay this deficiency. Generally money in your 401K is protected from creditors so they could only get to it if your voluntarily gave it to them. In my view, owing a deficiency is a smaller problem than not having money for retirement. Also if you pay your creditors pennies on the dollars to settle debt you could have tax problems. (see link below). If you file for bankruptcy there may be a means test (income ceiling) issue (see link below). However the means test does not apply if most of your debt was not consumer debt. It sounds like most of your debt may not be consumer debt. Obviously you need a consult with a bankruptcy attorney.

It's hard to say never, but I can not think of a single circumstance where I would recommend that a client invade their 401k to pay unsecured debts. You need to consider a Chapter 7 bankruptcy. To see if you are eligible and if you would lose any property, consult an attorney. Many attorneys offer an initial consultation at no charge. Give it a try. It sounds like you need a fresh start. Good luck. If you find my answer helpful, please click the ‘thumbs-up’ tab below. Thank you. Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

I would definitely recommend you save your 401K money because it is safe from the bankruptcy trustee. Bankruptcy appears to be a viable option and would resolve your debt issue with the deficiencies and any other unsecured debts. Call an experienced attorney in San Francisco who can counsel you on the pros and cons of filing bankruptcy. Many, including myself, provide a free 30 minute telephone consultation which you should take advantage. Good luck.

Don't use your 401k. It's exempt from creditors and they can't touch it. YOu need it for retirement. With a deficiency judgment, your credit is seriously impaired. So why not consiider the possibility of chapter 7?