Newbie questions

[Carrie C]

Getting ready to file next month and have been reading the forum which has been so helpful. I have several questions and any comments would be helpful. I live in FL BTW. My husband just took out a 36k sum from his elective retirement to put 20k on another house we can afford (our current home is almost 100k more and is still not under contract but up for sale). Does this count as income when they calculate what you can pay back? The remaining funds are for bills and items to fix up the older home we just bought. We were told by the attorney before this withdraw that the last six months of income is basis for the formula. I am worried that it will set us back for six months before filing.

My current vehicle is a lease at 556 per month with almost 3 years left. I plan on buying a cheaper vehicle quick. Can I turn the leased car in the the finance company and let it go with the BR. I called and their is no early termination for the lease. I can't afford the 556 plus don't want to be stuck with no vehicle in year 3 of the process.

My husband has steady income. I am in Real Estate and this year has been the pits, why we are in trouble (yet not late on any bills yet but the well has run dry). How would that work as I could make 10k next month or nothing in the next 6. Would we have to be re-evaluated often or do I have to report a commission I make each time?

Any advice/comments are appreciated!

[treehugger1]

Carrie, I am in a similar predicament as you if I were to file. I am coming to the end of a year where I made 30% more than in the past. According to legal folks I'm speaking with, I can amend my plan in the future, if needed. I am quite concerned about this. You should also note that the Form (Schedule I - income) states projected income, but the form 22 refers to prior six-month average. I think there is some "wiggle" room depending on your BK district. From what I've read on this board, districts are all over the place when interepreting and applying the BK code. I think you definitely want to meet with 3 or more BK attorneys making use of their free initial consultations. You want legal representation that has experience with the local BK trustee/judge in yoru area.

[SinkingFast]

Technically, a 401K withdrawal is income. The monies were taken from your pay on a pretax basis, so the year when you do withdraw it, it becomes taxable income. Now how your BK Court will address it is really a local thing. Some Courts count it in the 6 month CMI, some Courts don't.

You really need input from BK attnys in your area as to how your particular Court will view a 401K withdrawal.

[Grace]

If you actually withdrew the money from the 401k versus a loan, you'll have to pay a penalty and interest as it is considered income. Usually people end up with about 50% of the money they take out. If you just took out 36k and used 20k of it, you might very well need at least that left over 16k to pay the penalties and taxes. This only applies if your husband is younger than 59 1/2.

[SinkingFast]

If you actually withdrew the money from the 401k versus a loan, you'll have to pay a penalty and interest as it is considered income. Usually people end up with about 50% of the money they take out. If you just took out 36k and used 20k of it, you might very well need at least that left over 16k to pay the penalties and taxes. This only applies if your husband is younger than 59 1/2.

Actually, depending on your other deductions and such, it could really be more like 20% come tax time. Or an additional 10% if you had the 10% early withdrawal penalty withheld at the time you cashed out.

If you took out $36K and had the 10% penalty withheld at the time of withdrawal, you may only be looking at owing roughly an additional $3600 in taxes.

That's if you normally itemize, have mortgage interest deductions, and such that reduce your AGI significantly on a routine basis.

But Grace, dear,.......... the OP was asking if the 401K withdrawal is considered income for BK purposes. Not tax purposes.

[Carrie C]

Actually the withdraw was 40k and we recieved 36k as they automatically took 10%. I am sending in an additional 3k to the IRS on Friday. I have tons of deductions this year. a huge chunk interest on the house and I did own a few condos with interest only loans which I just mangaged to dump off my heap. I am hoping it will suffice.

I did not choose an attorney yet. Had one consult. I called today and I am dropping by tomorrow to find out if it does count as income. His processor said she did not believe they could count it but I am skeptic....if so I may have to put things off for another six months. Hopefully not but will find out tomorrow!

We were trying to think ahead and figured if we put 10% down on a less expensive home, which we did, and obtained a 6.4 interest rate which makes it much more affordable then the home we are in (80k higher and 8.4% interest). Our biggest problem is 100k in CC debt. Yes 100k.....It is sad that this system allows you to get anything you want until you are drowning! I don't think we can hang six months.....

Also I had a leased caddy for three years. I am thinking of going out in the next few weeks and buying nice used car and then just turn the caddy back to GMAC. When we do file 13 at least I will have a car I own and not have to worry about turning in a lease and then having nothing. Need to do this before the credit hits the fan, that will be soon!!

[filingin08]

Leased Car

My DH just finished a lease on a BMW. Our attorney said to buy a new car now, turn in the leased car, wait for the bank to send us a bill and include the bill in the BK. We could purchase the BMW outright for $20k or we would owe $10k on it if we turn it in (due to excessive mileage and wear and tear).