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401(k) questions in BK

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    401(k) questions in BK

    How are 401(k) loans looked at during Bankruptcy filing? I know the cant be discharged but does having one help/hurt or is it a neutral thing? I have a loan outstanding as well as regular contributions that i will not be listing as an exemption. According to the attorney I consulted I more than likely qualify for CH7 based on my income and family size. (91k family of 6). Could I be denied because of either the loan or contributions or is it likely I will be told to stop contributions to my 401(k)?

    #2
    From my experience, your 401k loans will not be an issue and you shouldn't have to stop contributing. I don't think you have anything to worry about.

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      #3
      There should be no problems with 401K loans. I had two at the time of my 341 and had no problems with keeping them. But I stopped contributing into my 401K long before that, so I can't speak to contributions in my own situation. Whether you may be allowed to contribute may depend upon your trustee and your court/circuit, if there are any decisions that speak to 401 K contributions, whether they can continue or not (and become disposable income distributed to the creditors).

      Comment


        #4
        Originally posted by 17CharleyCo View Post
        How are 401(k) loans looked at during Bankruptcy filing? I know the cant be discharged but does having one help/hurt or is it a neutral thing? I have a loan outstanding as well as regular contributions that i will not be listing as an exemption. According to the attorney I consulted I more than likely qualify for CH7 based on my income and family size. (91k family of 6). Could I be denied because of either the loan or contributions or is it likely I will be told to stop contributions to my 401(k)?
        It depends on which Chapter of bankruptcy that you use. In a Chapter 7, 401(k) (and other similar "ERISA") loan repayments are not deductible when calculating your current monthly income (CMI). In other words, it will not increase your expenses thereby reducing your CMI. In a Chapter 13, you can use it as an expense and reduce your "disposable monthly income" (DMI).

        You would not be told to stop because a Chapter 7 is a snapshot and really doesn't affect your post-filing contributions or loans. It only prevents you from using those as deductions in order to qualify for the Chapter 7. (Again, in a Chapter 13, a 401(k) loan and/or contribution is permitted. Some districts restrict it to one or the other (not both), while some may only allow a loan to be repaid. In either case, a Chapter 13 bankruptcy attorney will know the specifics as they apply specifically in your district.)

        You write that you are not listing these obligations as "exemptions". Did you mean as deductions from your income calculation?
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        I am not an attorney. Any advice provided is not legal advice.

        Comment


          #5
          Originally posted by justbroke View Post
          It depends on which Chapter of bankruptcy that you use. In a Chapter 7, 401(k) (and other similar "ERISA") loan repayments are not deductible when calculating your current monthly income (CMI). In other words, it will not increase your expenses thereby reducing your CMI. In a Chapter 13, you can use it as an expense and reduce your "disposable monthly income" (DMI).

          You would not be told to stop because a Chapter 7 is a snapshot and really doesn't affect your post-filing contributions or loans. It only prevents you from using those as deductions in order to qualify for the Chapter 7. (Again, in a Chapter 13, a 401(k) loan and/or contribution is permitted. Some districts restrict it to one or the other (not both), while some may only allow a loan to be repaid. In either case, a Chapter 13 bankruptcy attorney will know the specifics as they apply specifically in your district.)

          You write that you are not listing these obligations as "exemptions". Did you mean as deductions from your income calculation?
          Yes, deductions is what I meant. I'm reviewing with my attorney I was just curious as it looks like we are going chapter 7.

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