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401K Loan while in payment plan

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    401K Loan while in payment plan

    Can you take out a loan from your 401K loan while you are still in a payment plan? I was told by someone who works at an attorney's office that because you are lending yourself money, it doesn't count as debt/ doesn't affect your case. Is the money from the loan considered extra income or disposable income? please advise. Thanks

    Was that a bankruptcy attorney's office which answered that question? The thing is that it certainly depends on your plan and how new 401(k0 loans are dealt with inside a Chapter 13 bankruptcy. The issue is, that should you take the loan and the company takes payroll deductions for payments -- which is usually required -- then this could put your plan at risk. It's always best, regardless of the plan language, to discuss this with your Chapter 13 bankruptcy attorney.

    My feeling echoes some others that this is not a typical loan. But it does impact your plan. One of the jobs of the Chapter 13 Trustees is to ensure that you adhere to the plan and that you are successful. If the 401(k) loan jeopardizes the plan, it can be an issue. Depending on the usage of the withdrawal, it could be deemed disposable income because you just took an exempt asset and converted it into a non-exempt asset. How that plays in your specific case comes down to your plan, trustee, and district.

    Bottom line, is that usually a new loan from a 401(k) plan would require approval by the Chapter 13 trustee or the court.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
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    I am not an attorney. Any advice provided is not legal advice.


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