Question How do they treat loans from 401ks?

[EmmaPeel007]

I've taken loans from my company 401k plan to try and stay afloat over the past 3 years. The payments are automatically dedicted from my paycheck. What will BK do to these loans? I want to keep paying them off.

[kornellred]

I am in Chapter 13, and I am paying back 401K loans which are deducted right from my paycheck. They were considered part of my living expenses, and so were not a factor in determining my disposable income.
If a trustee were to make an issue out of paying back 401K loans, the loans would have to be considered as payouts and would be subject to 20 percent income tax (plus 10 percent penalty for early withdrawal if you are under a certain age). Such complexities may or may not be advantageous depending on your situation.

[EmmaPeel007]

Thank you!

[Flamingo]

I too had a small loan on my 401(k) back at the time we filed for dental work. I had to provide information on my 401(k) and on the loan, and the loan was just left as is and paid outside the Plan and continued to be deducted as usual from each paycheck until paid in full.

[Scott50]

The Trustee might raise your Chapter 13 payment once the 401K loan is payed off. My trustee wanted to know when the 401K loan would be paid off and included an increase in my plan based upon that.

[Flamingo]

The Trustee might raise your Chapter 13 payment once the 401K loan is payed off. My trustee wanted to know when the 401K loan would be paid off and included an increase in my plan based upon that.

It all depends on the amount...my bi-weekly payment was only $13.00. If the amount is larger, that would definately free up extra funds for the trustee.