Very scared / 1st lawyer consult tomorrow

[andysmom]

I may not be reading everything correctly, but are we basically unable to file bankruptcy (either chapter) because we have a 401k loan?
And if we can not file, what do we do?

[LALADY]

I've typed in response 3 times now and have lost it.

Say you have $22k. After tax/penalty, maybe its now $12-15K. I don't know that your $100K creditors will settle for $15K. Whatever you don't pay them becomes income. Although I read somewhere that Obama may be forgiving that this past year, don't know about this year and don't know if that is even true.

Also, your taxing authorities only allow payment plans for so long before it is lien against house. Don't know how long.

Creditors (w/o bk protection can chase you). Court/judgements/garnishments. They called my employer, threatened to call my elderly parents, can talk to your neighbors. At least BK gave me some protection there.

All questions to ask your attorney when planning your strategy.

[andysmom]

I'm not sure about the mandatory thing.
As far as how much is in it, not much- only about $22,0000

[LALADY]

Remember, too, if you are working out a deal with your creditors instead of BK, anything they forgive is taxed as income.

For example, you owe Chase $100K, but they say they'll take $50K. You get taxed on the $50K you don't have to pay. Although I believe I heard somewhere that this past year, Obama said you didn't have to pay taxes on that, but don't know if that applies to this year, and certainly don't know if any of that is true or not.

More questions for an attorney.

[LALADY]

How much is in your 401k plan (outside of the loan)? Enough to negotiate with your creditors for a partial payment on the 100K you owe them PLUS pay the taxes and penalties on the withdrawal? One should really never be touching 401ks or IRAs for any reason other than retiring. Certainly not to be paying bills. Guess we're learning that.

The question really is when considering bankruptcy, does your employer REQUIRE MANDATORILY (mandatory being the key word) that you must pay your 401k LOAN back IF you are getting a paycheck from them. If the answer is no, and you are filing BK, you may have a huge problem.

All of these are questions for your attorney.

[andysmom]

My husband just got home from work- thankfully-

He said that his work's plan (other people have done it) allows you to close your 401k plan & take your money out. I know there would be a 10% penalty & taxes, but if this is the case, would this help at all?

[andysmom]

Hi, lallady
I am soooooooo nervous right now & don't know what to do? I mentioned to the lawyer we are seeing on 3/18 that we had a 401 k loan but he didn't say anything bad about it- yet.
I was starting to feel a little more at ease- still crying out my eyes/on edge/not sleeping/ etc but now i seriously feel like I'm crushed & going to die.
We thought we were doing something right by taking out this loan to pay down chase.
I have no idea where to turn or what to do. I feel like I'm going to throw up & I hope my husband gets home soon because I seriously think I'm headed for yet another panic attack.

[LALADY]

And, from a personal standpoint, I want to give you a big ((((((HUG))))). I had a high 700 credit rating score until Chase decided to pull a fast one on so many of their customers. I was always on time, and always paid what was agreed upon. I am now involved in a class action suit against Chase for their little stunt. I'll see nothing from that suit, but I became part of it because they decided to play their game (despite the contract I had with them) in advance of Obama's new rules. I don't sleep, I don't eat, I've chewed my nails off, I've torn my eyebrows out. I know what it feels like. And I know what it feels like if you find you have no alternatives to get out of the mess you're in. I didn't talk my problems out with the folks here (although I lurked). I let it fester inside. My suggestion is talk to the folks here. Of course, make sure that the one giving you the legal advice is your own attorney. Everyone here is from different walks and backgrounds. The one responsible for helping you through this (and the one who ultimately is responsible) is the one you'll be paying. Again, Hugs. Take a deep breath. You're in for a ride. Hopefully, not too wild of one.

[LALADY]

That's what your lawyer has to advise you on. There is no wiggle room when it comes to these large 401k loans. Chapter 7 is a problem, and so is Chapter 13. Median income AND the means test really come into play. I'm sorry. I wish I had better news. But, I've got the sharpest attorney now (after having had others), not cheap, and I may still end up with no avenue to take to get out of the mess I'm in. If I were you, I'd be talking to at least 5 attorneys before choosing one.

[andysmom]

then what are our options? what do we do?

[LALADY]

Momof3, You're right on.

[LALADY]

You'll get taxed and get a penalty from the taxing authorities.

And, if your employer mandates you MUST pay your 401K back IF you are receiving a paycheck, then you are stuck. Many 401k loans do not allow for default unless you are leaving employment.

[andysmom]

can we just agree to give up any money in the 401k?

[momofthree]

I believe I remember someone saying at one point (take this with a grain of salt, didn't verify it because it doesn't apply to us) that the reason 401k loans cause a problem is because you basically borrowed money from yourself and are choosing to pay yourself back rather than pay your unsecured creditors.

[LALADY]

We are currently paying the 401k back out of my husband's check weekly through payroll deductions. Will this change?

In Chapter 13, court pays. In Chapter 7, with significant loans, you'll be required to provide proof that 401k loan payments are mandatory, as set up through the note, as payments set up by the employer, that they must come through payroll deductions AND if you don't, you're canned. Letter and Declaration will be required. Reason is: UST believes the 401 payments will be enough to pay your creditors off in full or in part. It's backed up by case law/precednet.

Why does having a 401k loan complicate matters so much?

Got me. They are there to protect the creditors, not you.

The only reason the loan was taken out was to try & catch up on bills & stay afloat to prevent this, but it just didn't work. Too little way too late.

Sorry, doesn't matter. I did the same and PROVED it to the UST.

How far under the median do you think you'd have to be not to have this extra scrutiny?

Don't know. They examined every part of my life for the past 3 years. And I wasn't even technically under audit.

Just wondering, I'm all new to this & am definately hiring an atty.

Hire one that is versed in significant 401k loans. Don't waste your time if they're not. You'll be throwing any money you have after bad money.