401(k) Loan Question

[Sadie]

Good Morning,

I have a question regarding my 401(k). I am in desperate need of money and need to borrow from my 401k plan to pay my mortgage.

My 341 meeting is scheduled on 10/11 can I borrow from my plan before my meeting or during the waiting period before I get discharged?

Any advise will be greatly appreciated.

[HHM]

Ummmm, a side note first...if you have to borrow from your 401K to pay your mortgage, why did you file BK at this point.

You can borrow from you 401K anytime after you file your case, so it won't matter whether you borrow before or after.

But you need to ask yourself...will this be the only time you need to borrow from your 401K (or otherwise use credit) to meet your basic expenses? If the answer is yes, then you will probably be ok. If the answer is no, you may need to rethink the assets you are keeping through the BK.

[Boscoe]

Sadie - How did your schedule I vs. J look? From your post, it sounds like you are quite a bit negative from an "meeting everyday expenses" standpoint.

Can you advise some particulars from your case? How much debt do you have and what kind is it? All credit card debt? Do you have regular income, i.e. are you employed?

HHM makes a valid point. A BK should remove much of your debt, giving you a fresh start with a financial picture that allows you to pay off all normal expenses as they become due - especially your mortgage.

Borrowing from a 401(k) should be only done as a last resort, for example, to prevent a bk. Now that you have filed, there really should be no reason to do so.

[Sadie]

[Boscoe]

I think you should have (and still can) let the house go in the bk, and find a cheaper place to rent. In today's market, there is absolutely NO guarantee that it won't take you many months to sell your house, and you could be completely under by that time.......

If you cannot afford the house, and your schedule I (income) vs. schedule J (expenses) should have shown this, then your attorney should have pushed you to let the house go in the bk.

Do you have an attorney? And what did your Sch I vs. J say? How negative were you?

[HHM]

I have a hard time sanctioning that plan as well. At the very least, you should have attempted to sell you home BEFORE filing BK.

Have you at least contacted a realtor to find out how much the house is worth? If I were you, I would do that ASAP. Hopefully your real estate market is better than the rest of the nation, but if you are upside down in your house (i.e. the house is worth less than what you owe), you MUST let it go in the BK.

[Sadie]

I live in AZ and the housing market is not that good, but my house is worth around $300,000. and we owe about $230,000. My ex-husband owns half of the house and wants me to sell ASAP, so he can get his half of the equity. My attorney was aware that I was negative on my monthly expenses, but said I would be ok as long as I sold the house. I'm negative about $130 per month. I would have sold the house before I filed BK, however that would not have helped me either, since my Credit Card debt was $47,000 and I'm only getting about $25,000 from the house.

Anyway back to the reason why I posted on this board. HMM mentioned that I can borrow from my 401k during or before I get discharged? Is this right?

Thanks.

[Boscoe]

You CAN borrow against the 401k, but we are saying that you shouldn't do so......You are not paying your credit cards, so that should have freed up some cash...

Your lawyer should have instructed you to put the house in the bk and should amend the bk to do just that. The house will then become an asset that the trustee will administer (i.e. sell), take the remaining equity, pay your ex half and the creditors the rest.

I must question how real the home value # is though. People (myself included) tend to overvalue their own home. And even though it may actually be worth the $300k, it could very well take months to get anywheres near that. And Arizona is one of the states hardest hit by this bad real estate market. Yours is not a "starter" home, so I am not optimistic that you will be selling soon for $300k.

Not trying to be negative here, but just realistic. You need to let this home go in the bk. Have your attorney modify your bk to include it. Your ex won't mind, just as long as he knows he'll get his cut. Just confirm with your attorney that since you are divorced, and you only own 50% of the home, you only own 50% of the equity.

[HHM]

Both you and your husband lose if the home goes into foreclosure;l and not trying to be negative, but if you try and hold on until after BK and attempt to sell it, I'd be willing to bet that there is a better than 50/50 chance that will happen. Arizona is only second to Nevada as far as having a depressed real estate market.

I think you need to take some steps to find out how realistic your plan is. Call a Realtor (preferably more than one) TODAY or TOMORROW and get some comps (comparable sales figures) (from recent sales, assuming there even are any) to see what the house might actually sell for.

Let me ask you this, starting from today, if your house took six months to sell, could you afford ALL your expenses only on the money you have coming in during that time? If the answer is NO, then you should explore some options with your attorney (and you will probably have to involve the EX) about what to do with the house and the BK. Sometimes in BK, people are forced to make difficult decisions, and must detach themselves emotionally from the situation and view the problem objectively.

[Sadie]

You both have valid points....I appreciate the advice and will consider other options. I was really hoping to hold on to the house, but I don't think I can afford to. I will talk to my attorney today.

Thanks again.

[ARO96]

You both have valid points....I appreciate the advice and will consider other options. I was really hoping to hold on to the house, but I don't think I can afford to. I will talk to my attorney today.

Thanks again.

Good luck to you. When my parents divorced, my mom got the home, but she knew she couldn't afford it. Tough decision to make I know, but keep in mind that while there are many memories there, you can start new memories at a new place to live. Better for the kids if you are less stressed over money matters as well. They need their mom happy.

Hope it all goes well for you.

[familyof7]

And while you are in bk and planning to surrender the home you would have a few months or more to move and during that time you can save money to move.