Borrowing $ from 401K?

[Liaah]

Can you borrow the money to pay your lawyer from your 401K? We need $1500, and while we are in no hurry to file, unless of course someone seeks a judgement, we are finding it hard to save. It's either a car breaks down, or one was wrecked, insurance out the gazoo, property taxes. It seems to never end. My husband gets a small bonus in Sept. and we could use that, but I am afraid someone might seek a judgement before then and then we would'nt have all the money to get the BK filed.

Also, my dad has a family vacation planned starting this Sat. It would be all expenses paid except gas and spending money. If we were to take $200 with us, would that look bad to the trustee? Most of the $ would be spent on gas and probably food. Maybe a little entertainment.

I should probably save the $200 for the lawyer, but my dad has been planning this vacation for sometime now and is not able to go alone, and of course a nice little break would do me and my DH wonders.

What do think?

[keepmine]

Nobody will worry about how you spend $200.
If you are still paying debts you intend to discharge, stop and use that money for legal fees. I wouldn't touch the 401K. If you haven't been sued by now, it would take longer than Sept. to get any sort of judgment.

[CATCHMEIFYOUCAN]

I borrowed from my 401k to pay my lawyer just before I filed. Im paying back on the loan through payroll deduction at about $10 a pay period (every 2 weeks). I was even allowed to include the repayment as one of my expenses on my BK. Although it is not wise to take money from you 401k BUT IF YOU NEED IT YOU NEED IT! Cool thing is YOU ARE paying yourself back with interest.

Best of Luck, CMIYC

[Sunshine]

Whether you can include 401k repayments as an expense in a Ch. 13 depends on your Trustee and your circumstances, I think. I had two outstanding 401k loans that I was paying back but our attorney told us it could not be included as an expense . . . I therefore had to default on those loans. I have read on these forums that some people were able to include as an expense, but we could not . . . Just something you should be aware of and maybe find out what the common practice is in your area.

If you are in no hurry to file, I say DO NOT take a loan on your 401k. Find a way to save some money. You could look at lowering the amount you contribute per paycheck.

[treehugger1]

It seems pretty strange to me that a trustee would not allow you to include your 401 or TDI loan payments. This could lead to an additional tax and penalty fee that doesn't jive with the "logic" of BK. If you don't pay these, you create a debt to the Feds and possibly your state. But, it could very well be that in your region the trustee won't allow it. This is one of those areas where a solid attorney might work to have this expense argued before the BK judge. I have $10K in TDI (tax-deferred income accounts) loans and when I first explored a chapter 13 as an option, the attorneys I spoke with intended to include them as other expenses. Catchme is correct in that most of these loans are not all "bad" as you generally pay yourself back the interest, as long as you can afford to pay.

[lrprn]

It seems pretty strange to me that a trustee would not allow you to include your 401 or TDI loan payments. This could lead to an additional tax and penalty fee that doesn't jive with the "logic" of BK. If you don't pay these, you create a debt to the Feds and possibly your state.

In our Ch 13 we are dealing with a trustee objection to paying back the six loans my husband took out against his retirement over the last eight years trying to keep us afloat before he finally accepted we had to file. Our trustee's position is that we are paying ourselves back every month instead of giving that money to our creditors and the creditors should take precedence.

Our lawyer filed a brief in our district court last year regarding this and our other trustee issue (mismatched Schedule I & J vs Means Test) and now we sit here in limbo waiting to see what our trustee is going to do. The latest court case decisions related to paying back retirement loans during Ch 13 are stating this should be allowed - probably why our trustee isn't rushing to court for our judge to make an official ruling. Until we know one way or the other what's going to happen, we just keep paying back hubby's six retirement loans every month

[treehugger1]

lrprn, I continue to be amazed at how important it is to have a attorney working for you. I wonder why your trustee is taking so long to make a decision. Is it because your attorney is asking that the objections be addressed by the judge? One year is a long time, but congratulations. One year of payments without confirmation. What happens if you get out there five years with no confirmation?

[lrprn]

I continue to be amazed at how important it is to have a attorney working for you.

I would add "a GOOD attorney" is crucial, especially in Ch 13. Our lawyer has been great! We took our time finding him and that paid off in our situation. During our pre-trial hearing with the judge last October, he actually told us at the end of the hearing that we had the best lawyer in town to handle our objections. Said it right in front of our trustee too!

What happens if you get out there five years with no confirmation?

We can only be asked to pay for 60 months or until all our creditors that filed claims are paid back 100% - whichever comes first.

If the unlikely happens and our trustee never forces the issue in court and/or we never get confirmed, then from what I understand we just keep paying every month until we hit one of the two stop points, then we are discharged and closed. Until then, it's stay off our trustee's radar and pray daily that no financial or health emergencies we can't handle happen. So far, so good.

[Liaah]

Thank you all for your input.

I think we are just going to wait this out for awhile and not take the $ from the 401k. We could have it paid back in a year, but I am not sure I want to take any chances on the trustee adding it to our look back income or not allowing us to pay it back.

We have an appointment this coming Thurs. to retain our attorney and I think I will run it by him then.

The main thing that has been bothering me about getting this filed sooner rather than later, is that the collection calls are becoming more aggressive and are calling my DH at work. This is causing him a lot of extra stress. We are 3 months behind going on 4 in July. Our attorney has told us that after we retain him we can give out his name and #. Hope that helps us with the calls at work.

I forgot to say, we are filing Chap. 7. Thanks!

[Spartan]

"...Our attorney has told us that after we retain him we can give out his name and #. Hope that helps us with the calls at work..."

To retain him, you do not need to pay in full, but only a retainer, which is typically a few hundred dollars. My CH7 attorney took $300 and told me that was more than what she needed as a retainer.

[CATCHMEIFYOUCAN]

My lawyer took $150 just to retain him.

Back to that 401k, you should really find out if you can exempt money you deduct from you paycheck to your 401k loan including any loans you pay back through payroll deduction. I had paid off my other car using a 401k loan and also had an additional 8% towards savings. Total of about $600-700 exempt through payroll deduction! And the Trustee couldn't touch it! (State of Virginia btw).

Good Luck, CMIYC