401k loan

[hankhill]

My wife and I took out a 401k loan several months ago to pay for some major work on my work truck and to pay off some other bills. We weren't thinking about bankruptcy at that time, so I didn't think it would be a problem. I've been reading a lot of posts about these loans, though, and it sounds like it might.
I have a life insurance policy that i inherited from my mother when she died, and it has a cash value. Should I cash that in, pay off the loan, then wait a few months before we file? Would that be frowned on?
We are going to see a lawyer at the end of this month, and I'll ask him the question too. I just wondered if you all had any thoughts.
We are under the state median by a couple thousand dollars.
thank you

[doudis2]

Hi, I will tell my situation and you can take it for what it is worth; I hope it helps

We also took out a 401k loan before we ever considered filing, yes this was a big mistake. We are in AZ and the exemption rules here for 401k funds goes like this. It is all exempt, except contribution made within 120 days of filing. In addition any money that is withdrawn via loan or disbursement is fair game for the trustee.

So here's how it has played out so far. Luckily we had only spent a couple thousand so our lawyer said we should save up and pay it back. Then wait the 120 days to file. My 401K requires a full payback so I could not just send back what I had left.

Anyway, we started this Odyssey in December of 2009. After we quit paying the items we want to discharge, CC's and mortgage, we paid the loan back in mid January. Then we planned and waited until mid May at which time we filled.

There is no real case law on this and my lawyers firm had to research this to make the recommendation that they did. At first they were talking about us spending it down on exemptable items, but I did not like this so I pushed back for them to look harder for other option.

Think about it the funds are exempt, UNTIL they leave your account. In this case it is a loan from yourself to yourself that has mandatory payback terms.

Logically I should be able to "put the money back" without it being considered a contribution and not have to wait the 120 days. However, we did have the luxury of being able to wait so that our odds are much better that this will all work out in our favor, but there are no guarantee's.

Our 341 was delayed by three weeks as our lawyer filled in the Phoenix district and with my stupid luck they just recently decided that people in my geological location now have to file in the Tuscon district due to the high volume of bkts.

So now we are scheduled for 7/9/10 which happens to be the exact day my first raise and bonus in 2 years will show up on my paycheck! I had planned for this and still I got screwed, argh. Great

All in all I think we choose the right path and I expect we will be all right. If they take my bonus and or my 401K, then so be it, but at least we will have a fresh start and this life lesson will never be forgotten!

Best of luck to you.

[kw1025]

keep track of where evry penny went if you deposited a lump sum in a bank account

[LSUTiger32]

I would cash in the life insurance policy and pay off the loan. Of course, get yourself some term life to replace the garbage whole life. Then you will have one less thing eating at you (the 401K loan) as you move on with the decisions that have to be made.