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401k question

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  • 401k question

    I'm still contributing to my employer's 401k plan at 6% which is the most that they match. Actually, I put in 6 they put in 3 tops. My contribution has dropped from 22 to 18 to 15 to 10 to 6%.

    I've read elsewhere on here where that low of a contribution is not enough to raise eyebrows. Does that really hold true?

    Regardless, does the trustee look at my POTENTIAL net income as if I were not making contributions which would raise my DMI or do they look at my actual net income. Even without the contribution and the added income (-taxes) my expenses should wipe it out but I would like to know if it's something I need to watch.

  • #2
    I've read that some people have had trouble over it and others haven't. It seems to vary with the district/trustee. The lawyers I've talked to out in my area said our 5% with equal match was fine. Even so, I think it would still be wise to make sure you can pass muster without it. Are you filing with a lawyer?
    There are two secrets for success in life:
    1.) Never tell everything you know.

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    • #3
      Yes. We've talked to a couple and I can't remember if that specific question was brought up but both knew that I was contributing because of 401k loans at the time. However, that was over 9 months ago.

      Comment


      • #4
        401(k) contributions vary by district. It is best to again consult with an attorney as to your present situation.
        _________________________________________
        Filed 5 Year Chapter 13: April 2002
        Early Buy-Out: April 2006
        Discharge: August 2006

        "A credit card is a snake in your pocket"

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        • #5
          If you have traditionally been paying into a 401K right along and about the same amount or even declined (rather than increased) I doubt this would look like any attempt at diverting funds away from your creditors. You are taking a responsible action towards your future so as not to be a burden on society and to have a proper retirement in your later years. Nothing wrong with that and that is why retirement funds are protected. It would be different if all of a sudden you opened a new account when you never had one going, as then it would look like constructive asset protection and would be questioned. I don't think you have any problems there. Oh and the consensus here in majority is DO NOT invade that account within your new start, just to "catch up" in life. You will never get back what you lose in interest and penalties as well as earned interest. We regret making that mistake. 'Hub
          If I knew it all, would I be here?? Hang in there = Retained attorney 8-06, Filed 12-28-07, Discharge 8-13-08, Finally CLOSED 11-3-09, 3-31-10 AP Dismissed, Informed by incompetent lawyer of CLOSED status, October 14, 2010.

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          • #6
            Are your 401k loans paid off now? I ask because I've read numerous examples where the 401k loan becomes a problem in a chapter 7. The only exception I've heard of was LALADY's and in her case her employer did not offer hardship withdrawals and if she did not pay it back she would lose her job. Otherwise, if I recall correctly, the loan gets backed out of your expenses on means test and schedule j too.
            There are two secrets for success in life:
            1.) Never tell everything you know.

            Comment


            • #7
              Whether or not you can count a 401k contribution as an expense on your schedules varies by district. Be ready to have other expenses to substitute if it is questioned.
              You can't take a picture of this. It's already gone. ~~Nate, Six Feet Under

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              • #8
                Originally posted by backtoschool View Post
                Whether or not you can count a 401k contribution as an expense on your schedules varies by district. Be ready to have other expenses to substitute if it is questioned.
                Well I WAS pretty sure that it had been established in case law(?) that neither 401k contributions or loans could count as an expense in a chapter 7. However I wasn't really thinking about it as an expense...more like a deduction similar to taxes...basically non-wages. I do have a small loan left but the soonest I could have paid it off was 2-3 months AFTER we quit paying the mortgages and credit cards. At that time, I thought we would be filing CH7 much sooner and didn't want that to look like a preferential payment to myself. As it's turned out, I could've probably paid it off and put plenty of time between that and when we finally do file.

                After doing some quick math it looks like if I didn't have the loan OR made any 401k contributions I would have a little over $200 per month after taxes from the contribution and the post tax loan payment. I don't think my loan payment can be used to help or hurt me but if the Trustee looked at my contribution as a part of my DMI then I THINK I would still be in the clear. It would be nice to know for sure.

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                • #9
                  Originally posted by AngelinaCatHub View Post
                  If you have traditionally been paying into a 401K right along and about the same amount or even declined (rather than increased) I doubt this would look like any attempt at diverting funds away from your creditors. You are taking a responsible action towards your future so as not to be a burden on society and to have a proper retirement in your later years. Nothing wrong with that and that is why retirement funds are protected. It would be different if all of a sudden you opened a new account when you never had one going, as then it would look like constructive asset protection and would be questioned. I don't think you have any problems there. Oh and the consensus here in majority is DO NOT invade that account within your new start, just to "catch up" in life. You will never get back what you lose in interest and penalties as well as earned interest. We regret making that mistake. 'Hub
                  Yes, I've been contributing non-stop for years and this is the least percentage I've ever saved so from that aspect it shouldn't raise any red flags. One thing that worries me about my savings is that we got tax refunds from 2008 and 2009 this year (procrastinator). Because I had reduced my 401k so much I wanted to save those refunds but couldn't do a lump sum contribution to my 401k and couldn't effectively put them in without screwing with my paycheck deductions. So, they went into Roth IRAs. The Federals went into 2009 IRAs (before April 15th) but because my state was budget crunched I didn't get those until a couple weeks after the deadline and they went into 2010 IRAs.

                  A minimum of 7 months will have passed, though, before we have to file BK. I don't know if that makes a difference.

                  Originally posted by debee View Post
                  Are your 401k loans paid off now? I ask because I've read numerous examples where the 401k loan becomes a problem in a chapter 7. The only exception I've heard of was LALADY's and in her case her employer did not offer hardship withdrawals and if she did not pay it back she would lose her job. Otherwise, if I recall correctly, the loan gets backed out of your expenses on means test and schedule j too.
                  Got the one small loan. The two different attorneys that I talked to about 9-10 months ago didn't mention any problems when I mentioned that I had a loan but of course these were FREE consultations for what it's worth. I guess I need to start a new lists of questions for attorneys since so much time has passed since I last spoke to one.
                  Last edited by BROKEDED; 10-18-2010, 12:40 AM.

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                  • #10
                    Originally posted by BROKEDED View Post
                    Well I WAS pretty sure that it had been established in case law(?) that neither 401k contributions or loans could count as an expense in a chapter 7. However I wasn't really thinking about it as an expense...more like a deduction similar to taxes...basically non-wages. I do have a small loan left but the soonest I could have paid it off was 2-3 months AFTER we quit paying the mortgages and credit cards. At that time, I thought we would be filing CH7 much sooner and didn't want that to look like a preferential payment to myself. As it's turned out, I could've probably paid it off and put plenty of time between that and when we finally do file.

                    After doing some quick math it looks like if I didn't have the loan OR made any 401k contributions I would have a little over $200 per month after taxes from the contribution and the post tax loan payment. I don't think my loan payment can be used to help or hurt me but if the Trustee looked at my contribution as a part of my DMI then I THINK I would still be in the clear. It would be nice to know for sure.
                    401k contributions are a red flag for the US trustee, especially if not making the contribution can put you into a chap 13. $200 a month is enough to fund a chap 13, so I would make sure you have other expenses to substitute. I would assume your contribution will be questioned if you are that close to being pushed into a 13.
                    You can't take a picture of this. It's already gone. ~~Nate, Six Feet Under

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                    • #11
                      Originally posted by backtoschool View Post
                      401k contributions are a red flag for the US trustee, especially if not making the contribution can put you into a chap 13. $200 a month is enough to fund a chap 13, so I would make sure you have other expenses to substitute. I would assume your contribution will be questioned if you are that close to being pushed into a 13.
                      Well, I went back to legalconsumer and plugged in some more numbers. I plugged in about $3000 more than what my last 6 months of wages would equal averaged for a year. I hedge my bets in case work picks up but it's pretty erratic. I have to stay on top of this because my paycheck varies in hours worked and hourly pay per week. I used all the standard numbers allowed. The only numbers I plugged in was wages/taxes, secured debt, and health insurance...no "extra" deductions for childcare, etc... and I come up with -200 on line #50.

                      Again, that would be my available monthly income without 401k contribution or loan payment. What do ya think?

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                      • #12
                        Originally posted by BROKEDED View Post
                        Well, I went back to legalconsumer and plugged in some more numbers. I plugged in about $3000 more than what my last 6 months of wages would equal averaged for a year. I hedge my bets in case work picks up but it's pretty erratic. I have to stay on top of this because my paycheck varies in hours worked and hourly pay per week. I used all the standard numbers allowed. The only numbers I plugged in was wages/taxes, secured debt, and health insurance...no "extra" deductions for childcare, etc... and I come up with -200 on line #50.

                        Again, that would be my available monthly income without 401k contribution or loan payment. What do ya think?
                        -200 without 401k contribution should keep you in a chapter 7 and sounds good.
                        You can't take a picture of this. It's already gone. ~~Nate, Six Feet Under

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