Getting loan out of 401K

[MichelleLeigh]

This is a little premature since we are in the process of filing our papers, but I'll ask anyways. While we are waiting for the bankruptcy (ch. 7) to be discharged, can we get a loan out of my husband's 401K?

[edwards2]

You are not supposed to take out any loans during the process although some people have to. The problem you might have with what you are considering is if they ask for bank statements, etc., that amount is going to show as income. It is dicey to say the least. If you are going to hire an attorney - ask him/her to be sure but I would not chance it.

[HHM]

Michelle, you are filing bankruptcy and you want to TAKE OUT A LOAN. There is a reason you are in bankruptcy, unless you need the money for an emergency, leave the money where it is. 401K is SAVINGS.

[MichelleLeigh]

I'm just trying to make sure that I will have a van in the future. There is a great possibility that they will want my mini van to pay off my debts. I do get a $1,200 exemption for my van, but we would need more than that to get a used mini van. We would rather borrow the money from ourselves than someone else. I wasn't sure what the "rules" were regarding this.

Thanks for your concern HHM. I do know why I am in bankruptcy and I don't plan to go down that path again. Like I said, I'm just trying to cover myself (ourselves). Trying to plan for the future.

Thanks for your responses.
Michelle

[HHM]

Why is there a possibility of losing your van, how much is it worth vs. how much you owe, if anything.

[MichelleLeigh]

My attorney told me that it is likely that I could lose it. The van is paid off and they would make about $3,000-$3,500 after paying me $1,200.

[HHM]

Well, that sux. The other option with the VAN is a redemption, if the trustee does take it, you can redemn it from the trustee for its value.

[MichelleLeigh]

OK.....back to my original question. To buy it back, I need money. Could I get a loan out of my husband's 401K before being discharged?

[edwards2]

I am confused I thought they didnt take your vehicles whether they are paid for or not. How are you supposed to get to work?

[MichelleLeigh]

First of all, I would like to say that this site has been a lot of help and very informative. But when I ask a question, I cannot get a straight answer?!? (heavy sigh)....Thanks anyways!

Michelle

[HHM]

First of all, I would like to say that this site has been a lot of help and very informative. But when I ask a question, I cannot get a straight answer?!? (heavy sigh)....Thanks anyways!

Michelle

The question is actually more complex than it seems so its not simple answer. However, my instinct says YES you can (because its a loan to yourself), but you should at least wait until after the 341 meeting.

[aa06a47]

First of all, I would like to say that this site has been a lot of help and very informative. But when I ask a question, I cannot get a straight answer?!? (heavy sigh)....Thanks anyways!

Michelle

Michelle, need the steps you have taken so far in you bk process. 1) Have you filed yet?...how far along are you in the process?...

There is a way to keep the van, but it would require some upfront work. You need to give someone a "security interest" on the vehical, but at the same time, you have to show that they actually gave you something for it. For example, you borrowed 1K from your parents / kids / brother, or whomever and in exchange gave them a security interest.

This might be construed as fraud this late in the game, so be careful on what you do. I doubt an attorney will tell you this, so you might just call and ask.

[arf75]

Michelle,

Did you ever get the loan? If so, did you have a problem with the trustee?

[SinkingFast]

Wait until the 341.

Another filer, back in the spring had excess property they couldn't cover. Same deal. ProSe filer. $7000 in assets not covered by Exemptions. A boat and part of a car, I think.

At the 341, the Trustee acted like he was gonna be a hard case. The Judge excused himself and took a recess to allow the Trustee and the Filers a chance to negotiate.

Immediately, the Trustee wheeled to the filers and said, "How does $3500 sound to you?? I don't care where you get the money. You can borrow it from family or friends. I don't care. How does that sound to you??"

The filers took the deal.

Wait to see if the Trustee is even interested in your van. Book value ain't what he/she will get and the Trustee knows it. They quick sale. Plus they have costs to sell. Then they gotta pay you your exemption right off the top.

Wait. See what happens. Cross that bridge when you come to it.

[CindyLou]

first, be sure to value your van as low as possible, i.e, lowest loan value of a van in fair condition. use www.edmunds.com and click appraise vehicle. second, i would not take a loan from 401K before your 341! This could then become non-exempt. Also, repayment to 401k is NOT considered a priority debt. IF you take it out after 341 and before discharge i wouldn't deposit in any account. you should be fine with the van if its the only property.