CARES Act - 401K withdrawal and Chapter 13

[MikeG]

My wife is in chapter 13 bankruptcy. Since she is the beneficiary on my 401K. I am aware that stimulus checks are exempt. I would like to know if 401K withdrawals under the CARES Act are also exempt from the bankruptcy. I am not part of the bankruptcy.

[sophieanne]

Hi..hopefully this is a question someone knows the answer to since the Cares Act is so out of the norm. I may be wrong, but I don’t think this would be exempt. The money is exempt while in an account but once it comes out becomes money the trustee could want. Is there an attorney that your wife can ask?

[justbroke]

This is a very good question and I'm not sure it has yet been tested. I don't see where any Chapter 13 Trustee would particularly care, unless you provide tax returns to the Trustee annually. At that time, they may see an increase in your income and question where it came from. I guess this "may" only be an issue where you file jointly and are required to provide a copy of the annual tax returns to the Trustee.

If the Chapter 13 Trustee truly "CARES" about the debtor, then they would see this simply as a hardship withdrawal during COVID and not bother the debtor.

The bottom line is that this is too new and I couldn't find anything in CARES that explicitly protects the withdrawals from being defined as "income" in a Chapter 13.'

Normally, in a Chapter 13, the need to pull money from a 401(k) account should be reviewed with the attorney. Whether or not Trustee notification is required would be addressed at that time. In some cases, the Trustee would want something in writing describing a hardship which can't be satisfied in other ways.