Dismissing Ch13 and settling outside the court with 401k loan

[pychk2pychk]

I was curious if anyone has heard of someone dismissing their BK, taking out a loan against their retirement and settling with the creditors for 30-40% instead of the 15% they'd get over the 60 mo in a plan? The creditors get more in one lump sum and the debtor becomes debt free aside from the 401k loan and mortgage. My credit score is already jacked so I'm not concerned with the BK being on there. Interested in knowing what the great folks on this site think?

[LadyInTheRed]

DON'T DO IT!

You already filed the 13 because it was your best option. Stick with your plan. There is no guaranty that all creditors would go along. You could easily find yourself right back where you are, except that you would have to start the 60 months again and will be stuck with a 401k loan that you used to pay creditors who would settle.

My only regret with my bankruptcy is that I took a 401k loan to pay off a credit card about a year before filing instead of investigating my options and discovering that I was headed for BK, even without that cc payment. Let your 401k continue to grow so you can use it for what it is intended for - your retirement.

[toojerm]

why would you want to do that? You want to borrow from your retirement to settle for more than you would pay in a ch13. I'm guessing that is exactly the kind of poor decision making that led to the filing in the first place. Just wait it out, it will be over soon, and then the balance will be discharged. Like you said, your credit is already destroyed due to the BK, so you might as well derive its benefits. If you need some cash, take a smaller 401k loan for your own needs, but that should only be a last resort.

[justbroke]

I wouldn't do that! You have no guarantee that the creditors will settle. You will deplete a retirement account, and I highly don't recommend that -- especially if you're over 30. You will receive 1099s for the forgiven debt... or, even worse, they'll just sell the difference to a Junk Debt Buyer who will hound your further!

With a Chapter 13, you are guaranteed a forced "settlement" and no more collection. Your discharge comes, and you are done!

justbroke says: never use retirement funds for settlement on "unsecured" debt... never! (Only in limited circumstances would I look the other way when using retirement funds to settle secured debt.)