Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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Apply for. 401-k loan

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  • Apply for. 401-k loan

    Hi all - ok so here's the scoop. I got confirmed a month ago and In my confirming order it does not mention anything about not applying for additional credit, etc. Now before everyone takes out their pitch forks and torches let me explain the scenario.

    1. I have a 401-k account at work

    2. I am eligible for a loan and can be paid back 1-5 years through payroll deduction

    3 minimum is $2500 which is more than I need right now

    4. Been paying my trustee on time for the past few months,

    5. I need to do an emergency dental procedure.

    6. Thinking of applying for a short term and pay it off with payroll based on 5 years and payments would be a tiny $30 a month. I have to borrow a min. Of $2500 but procedure was $600 so I would return the rest back to my 401-k

    7. Reason doing this is of course no credit, my dentist will carry the balance for 90 days interest free. So I can do the procedure now but he wants payment in 3 months.

    8 I can have funds in my hand in 2 weeks and payroll deduction begins next month.

    Would this be ok without asking my trustee? Again this is a short term loan NOT a 60 month huge loan. I intend to shove the majority back to my 401-K and pay off my dentist. The issue here is my 401-k is my only source of "credit" since I'm borrowing from myself AND I am only doing this for a quick cash flow situation.

    Thanks in advance for your valuable opinions and advice.
    Filed March 2009

  • #2
    If the cost for this procedure exceeds the amount you had listed as medical/dental expense on schedule J, you could file an amendment to both your schedule J and your plan.

    As far as the 401k loan goes I am unsure if that constitutes credit or not as it is basically a loan that where you are both the lender and the borrower. I would ask your attorney for his/her opinion.
    Chapter 13 Filed (Pro Se) - 9/30/09
    Confirmation Date - 12/1/09
    Stats - $1752/month, 29/36 completed, 4% to Unsecured, Lien Stripped 2nd Mortgage


    • #3
      Whatever you do PLEASE do not invade the 401k. Leave it alone and pretend it doesn't exist. I say that because my 'Hub and I borrowed from his at a heavy tax penalty, and even though we tried to pay it back, we never could. Then trying to stave off the inevitable BK, we liquidated it entirely trying to pay the bills and keep afloat. Again we got hit with a heavy tax penalty, and all for naught. This was a retirement account and thus protected--but we did not know that at the time.

      In effect, we took perfectly good money and flushed it down the toilet.
      "To go bravely forward is to invite a miracle."

      "Worry is the darkroom where negatives are formed."


      • #4
        I agree with the tone of AngelinaCat's post- over the years had to hit the "k". Not sure about whether its OK under a 13, but wanted to clarify that if you take a loan (not a withdrawal) and pay it back there is no tax penalty. If you leave your job and then don't pay it in full at the time you leave, well, thats another story.

        Also, when you say "return it to your 401(k)", most plans don't allow for a partial pay back and require you wait a year until a full payback is allowed. You should check your plan rules on loan payback carefully.


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