Beyond the taxes and penalties, early withdraws from retirement accounts for the purpose of catching up on bills generally does not fix the negative financial situation. The amount withdrawn typically doesn't cover the entire amount owed and the person continues life with a big chunk of debt. The result is a significantly reduced retirement account and financial trouble down the road as the person approaches retirement.
Retirement accounts qualified under the Employee Retirement Income Security Act (ERISA) are excluded from bankruptcy. Most employment based retirement plans such as 401(k)s, 403(b)s, defined-benefit, and profit-sharing plans are typically ERISA-qualified. Other non-ERISA accounts may qualify for an exemption. An exemption means the retirement account would be protected from the bankruptcy.