341 Meeting, Presumed Abuse & 401k Loans

[Pilgrim]

I recently had my 341 and it did not go very well. The UST seemed really annoyed with me.

I am over the median and she asked me why I didn't file C13. I told her it was because I passed the means test for a C7. She says no, no you didn't, you are paying too much in taxes (Just 1 deduction).

I am pretty sure I am heading to a 13 if not a dismissal. She also questioned my numbers on some of the other items on the means test. I struggled to answer her but didn't really know what to say as I was caught off guard. I really felt like I was being drilled.

She then asked me if I would lose my job if I stopped paying my 401k loans. I told her I didn't know. Can they force me to stop paying my 401k loans back and take a hardship withdrawal?

Thanks!

[Help!]

It sounds to me as if the UST has decided to re-work your means test. The UST can add back in a portion of your taxes to your income and the entire monthly repayment amount of your 401K loan (unless this would cause you to lose your job). The UST may also scrutinize the other expenses on your means test, including things like the IRS Standard for medical expenses. Even though you're entitled to use that full amount, the UST may ask for receipts to show that you actually pay that amount out of pocket. We were asked for a copy of our health insurance policy which shows co-pays, deductibles, etc. We also had to provide receipts to show what we spent on medical expenses during the six months included in the means test.

We were given a six page list of documents to provide to the UST, and it took me about a week of non-stop digging and photocopying to get it all together. It was exactly what you'd picture for an IRS audit. The pile ended up being 347 pages thick.

When the UST has filed a statement of presumed abuse, there are only three things that can happen. (1) They can change their mind and file a statement of no presumed abuse (rare, but happened to dragonnfly); (2) They can file a declination, the next best thing (rare, but happened to myself and Kimba251) which allows the Ch. 7 case to move forward; or (3) They can file a motion to dismiss/convert (common - see getouttadebt's posts). By law, they have only 30 days from the statement of presumed abuse to do one of these three things.

If you're very opposed to being in a Ch. 13 plan as we were, one situation that can result in a declination is offering up assets (even some you previously exempted) for liquidation. We were able to show with calculations that our creditors would receive greater repayment by liquidation of our vehicles owned outright, all the cash we could come up with and our economic stimulus check than if we made payments in a Ch. 13 plan based on our Schedule J. The UST filed a declination and we were discharged pretty much on time. It was a very, very large step down in lifestyle and we will be a one car (one old car) family until we can save up the cash to buy another car. It was absolutely worth it to be out from under all that debt.

You might consider proposing something similar to the attorney for the UST in your case, and I wouldn't rely on your lawyer to prevent your case from being dismissed. Ours was all too happy for us to convert, as this would have been the easiest thing for him. Once the UST is determined to dismiss/convert, it is very difficult to change their mind. It's a "guilty until proven innocent" situation and in order to succeed you really have to defend your petition. Once the UST files a motion to dismiss/convert, the only option is to object and have your attorney argue your case to the judge. The UST has phenomenal attorneys, and ours would have been no match. Going this route is usually outside the normal fees for an attorney and can get very expensive very quickly, frequently without a good outcome (Yankeegirl comes to mind).

You may want to look through the old threads and read through some of the stories for the users I've mentioned. In addition, you may want to read through rfassett's threads - doesn't get much worse than that, but it illustrates that you will eventually prevail if you have nothing to hide and don't give up. I am sure others will chime in here, too. Don't give up or be afraid of the UST. Although their attorneys can be very intimidating, they're just doing their jobs. Don't assume that you should be in a Ch. 13 just because they're questioning you.

[Help!]

Oops - forgot to mention one more thing that can happen after the statement of presumed abuse. The UST can file the statement "presumption of abuse unknown". I believe this was filed in Kimba251's case and was followed by a declination.

Sorry - you asked a question and got a dissertation. I just wanted you to know that if you decide to push back against presumed abuse there are many here who can help.

[Yankeegirl]

Don't give up yet Pilgrim!

Did you file pro se or with an attorney? If you filed with an attorney, have you spoken to him/her yet about the situation?

Help! is right in that 401(k) loans are not a permissable deduction in the means test. But the fight isn't over yet!

Do you receive a tax refund at the end of the year? If not, you can legitmately argue that your withholding is correct.

Also, are you sure you've covered all of your allowable (and documented) expenses? While the 401(k) loan repayment may not be allowed, there may be other deductions that you missed but are entitled to receive (such as $200 for paid in full vechicle with over 75K miles) Your attorney should be able to tell you what will work in your district and won't.


It's not over yet! Hang in there!

[Help!]

Yes - Yankeegirl has another good point. If the UST is going to go through your petition with a fine toothed comb looking for income and reducing expenses, you might as well do the same. There may be some expenses that you underestimated or even some you didn't know you could use.

[Pilgrim]

Thanks Help & Yankeegirl!

Yes I filed with an Attorney. My 401k loans are not included as a deduction on my means test but they are included as an expense on my Schedule I.

If the UST tries to convert me then I will convert. I don't think I will have the fortitude (or $$) to battle it out. As it is I have very little money left over (less than $100) after paying the bills each month. When I say bills I mean mortgage, car, utilities, fuel & basic food. No luxuries and no savings.

My big worry is that I will be forced into not paying back my 401k retirement loans. It sounded like the UST wanted me to take a tax hit and try to convert the loans into hardship withdrawals. Can I be forced into a hardship withdrawal so there is more money for the CH13 payment plan?

Thanks again! It really helps having people like you available to let us newbies know what to expect.

[AngelinaCatHub]

Pilgrim, I need to make a template to state how many times I have said this. Please tell me you are represented. From what I have seen (sorry gals) female Trustees seem harder. I don’t know why, but just an observation. Hang in and state in spades, “I’m HERE, because I have NO MONEY!!!!”, and I need help. Just say it and MEAN IT. It will work out for you.

I made a bad mistake of drawing off my 401K then the job changed, I lost a bunch on tax and penalties. It would be prudent to grieve this to the Trustee that it will cost you more not to pay the loan back. IRS first, then your 401K. That is, if you can pull it off. ‘Hub

[AngelinaCat]

Hi Pilgrim, welcome to the Forum. You will find many sympathetic friends here. While I don't really have anything to offer right now, I want you to know that I will think about it and see what churns up. We ('Hub and I--you are about to meet him) have been through a very difficult--to us C7, because of an incompetent attorney. We got through it and so will you.

Our Best~~~~

[Yankeegirl]

Check with your attorney!

In our district, neither 401(k) contributions or loan repayments were considered in the means test for Chapter 7. However, they WERE considered for Chapter 13 (makes no sense, I know)!! So even if you're pushed into a 13, you may still be able to both contribute to the 401(k) and repay the loan without adverse tax consequences.

[magyar123]

The original poster must have run into a real creditor friendly, anti consumer trustee, who on that particulard day must have started her monthly thing.

[TEW]