401k loan during chapter 13

[dylancarly]

Are you allowed to take out a small loan from a 401k during a chapter 13. I desperately need tires for my cars and it is hard to save that much. Has anyone taken out a loan during a chapter 13.? Do you need the trustees approval?
Thanks
Two years down three to go!!!

[chpxiii]

You will need to get permission to borrow money from the bankruptcy court. You should talk to your lawyer first. There are times when permissions for loans are granted.

[MajorMike]

For a 401K, they wouldn't even know about it.

[HHM]

You need to be very careful with yoru budget here...can you really afford the payment to payback the 401K loan. How tight would things be then? What if something ELSE came up while you were in payback, could you contiue to afford the 401K loan payment.

[Flamingo]

First, you need to check with your attorney if it is OK to do that - for a small amount there may not be a problem but make sure you check with your attorney to get permission. Otherwise, fooling with your 401(k) can be a reason to have your Plan dismissed. Don't take that chance. If it is a small amount for your tires (should be no more than $500 unless you own a race car), you can spread that out to keep the payment small so it will not hurt your Plan or make you unable to pay your regular bills.

[MajorMike]

Flamingo, our tires on a 2004 toyota Camry Solara were over $200/ each...!!!
Thank God we got rid of it!

[aces67]

I've also wondered about this. I mean would the trustee even know??? How closely does the trustee monitor a 401 K account???

[chpxiii]

The fact of the matter is, while in an active Chapter 13 bankruptcy, you are NOT supposed to incur anymore debt. Taking a loan out is incurring debt. There are times when you need to, and those are times when you need to petition the bankruptcy court for the loan.

In a Chapter 13 bankruptcy, your financial estate is no longer under your control, but the trustee's. That is the trade off to having a stay from the creditors and for having some of your debts relieved.

It's too bad more people don't understand this when going into a Chpt. 13. Not to mention touching a 401k is a bad bad bad idea.

[krielly]

It's also too bad that lawyers don't advise people to budget for things like that over the life of their plan.
Ours didn't but thankfully I included the purchase of a couple of sets of tires (2 for each vehicle) over the life of our 60 mo plan.
Good luck to you!!!!

PS: Will you be getting the stimulus rebate in May? Any chance you can hold off on purchasing tires until then?

[chpxiii]

It's also too bad that lawyers don't advise people to budget for things like that over the life of their plan.

I thought that's why one puts a monthly auto repair budget in their plan? I've posted about this before. Just because something is budgeted in a chapter 13 plan, doesn't mean it's supposed to be spent monthly. It's to be saved until you *need* it.

[dylancarly]

401k

Thanks for the advice. Unfortunately I did not really add too much to auto repairs in my plan. The amt. I budgeted has been eaten up by gas prices etc. I decided I will hold off until I save enough or my tax rebate. The only thing I have financially intact is my 401k and I guess I should not borrow from that. Plus I really dont care to rock the boat and get my tustee and lawyer involved for a 600 purchase. Thats why I like this forum so much, it keeps people like me from making impulsive decisions, which landed me here in the first place.
Thanks