Not for me!!!

My next door neighbors have gotten themselves into a bad financial situation, due to the fact that they need the latest and greatest on everything electronic, automotive and household.

They have a mortgage that they recently refinanced to take in their 2nd mortgage and pay off their 2nd auto. They also have about $30,000 in cc debt and a payment on the 1st auto. The husband (2/3 of their combined salary) lost his job and severance is up. She has a 401k valued at roughly $25,000.

If they declare bankruptcy, will the $25,000 be protected? Or will they have to cash it out to cover their debts?

Since he has been laid off, she has increased her 401K contribution because they figure they will declare bankrupcty anyway, so she's trying to keep as much of "her money" as possible.

I'm not really trying to get into whether or not it is ethical, but whether or not the laws are actually written this way.

Thanks for your help.

~Dora~
(Who does everything she can to honor her debts.)