Impact of 401K Loan Prior to Filing

[Sunshine]

I would like to take a loan on my 401K, probably $5000, in order to get caught up on utility bills, car payments and to buy a new refrigerator. Our fridge is on its last leg and we must get a new one. we won't buy a top of the line, but we need something. $5000 may even be more than I need to get caught up and buy the fridge so I could take less of a loan.

I am planning to file Ch. 13 individually, without my spouse. He doesn't have a 401K or similar retirement account from which we can borrow. I will be paying my loan back over 5 years.

What potential problems am I looking at if I do take this loan and then, in the next 30-60 days, file Ch. 13? I know the trustee can and probably will ask for bank statements . . . should I have my husband open an individual account to deposit this loan money into?

I also already have one loan on my 401 K that I am currently paying back, which shows on my pay stub. Can the trustee make me default on that loan ( and possibly the new loan)?

Any insight would be greatly appreciated.

[Sunshine]

Hmmm . . no one can comment on this?

Maybe I should add that my payments on the new loan will be about $115 per month . . . it shouldn't affect my ability to pay on a Ch. 13 plan. I mean, I'll have enough to still pay into the plan and pay off creditors within 3-4 years. Will the trustee want the extra $115 per month to go toward my other debts though? We'll get screwed on our taxes if we have to claim the $5000 as income, which is what we will have to do if the Trustee forces me to default on the loan.

Would it be better to wait on the loan until after filing Bk? We just want to get caught up on our car payment so that it doesn't have to be included in the Ch. 13, not to mention we need a new fridge.

Please, anyone with any ideas or advice, please respond.

[HHM]

The main problem is that you won't be allowed to claim the 401K loan repayment as an expense and therefore you will have to pay that additional $115 per month into your chapter 13 plan as disposable income.

Why not include the car in the chapter 13? There is little if any downside to doing so, and if you owe more than the car is worth, you need only pay off what the car is worth, not what you owe.

Hold off on the loan, it will only make things more complicated than they need to be.

[cpginvegas]

I borrowed 30,000 from my 401K three months prior to filing my chapter 13. What the trustee said was that while I could continue to pay back my 401K, my unsecured creditors had to be paid back at least as much as I am paying myself! Therefore, if your BK does not allow for your creditors to receive as much as 401K loans you have, they will not allow it.