401K loan repayment. Is it allowed in Chapter 13 plan in OH.

[jkmommy]

My DH has a 401k loan being deducted from his paycheck. It has 2 more years to be paid off. I am scared to death about repayment being stopped by trustee when we file. If we had to convert it to a withdrawl the taxes would kill us! Anyone have any insight! Thanks in advance!

[lrprn]

Whether you can continue to pay on a 401K loan during your plan will depend on your local court's customs. Some will allow it, some won't. There are case law decisions in some bk districts allowing it, but this is an evolving part of the Ch 13 bk law. This is a question your lawyer will have to answer.

Contributions to a 401K are allowed during a Ch 13 (although the amount you can contribute is often capped by local court and trustee customs). This ability is set by case law precedent and is widely accepted by Ch 13 trustees these days. However, again you should ask your lawyer if your trustee is allowing 401K contributions to continue during your active 13, because a few Ch 13 trustees will still try to block them unless your lawyer steps up and cites the case law.

[HHM]

Whether you can continue to pay on a 401K loan during your plan will depend on your local court's customs. Some will allow it, some won't. There are case law decisions in some bk districts allowing it, but this is an evolving part of the Ch 13 bk law. This is a question your lawyer will have to answer.

Contributions to a 401K are allowed during a Ch 13 (although the amount you can contribute is often capped by local court and trustee customs). This ability is set by case law precedent and is widely accepted by Ch 13 trustees these days. However, again you should ask your lawyer if your trustee is allowing 401K contributions to continue during your active 13, because a few Ch 13 trustees will still try to block them unless your lawyer steps up and cites the case law.

Sorry, that is backwards...

401K loan repayments are allowed across the board, see Section 1322(f) of the BK code.
Continuing 401K contributions is more subtle and will vary by district, although there is a strong argument in favor of allowing those as well.

[lrprn]

Sorry, that is backwards...

401K loan repayments are allowed across the board, see Section 1322(f) of the BK code.
Continuing 401K contributions is more subtle and will vary by district, although there is a strong argument in favor of allowing those as well.

Interesting....thanks for the correction, HHM.

What confused me is a CA bk lawyer's blog states that according to a May 2009 case decision in the 9th Circuit, 401K loan repayments are not a debt and cannot be considered a necessary living expense - http://bklaw.com/bankruptcy-blog/200...oan-repayment/

Yet according to a Bankruptcy Law Network post, a Jan 2008 case out of Florida set precedent that continuing 401K contributions *and* repayment of 401K loans are not considered disposable income when filing Ch 13 and can't be counted as such in the Means Test - http://www.************************/...13-bankruptcy/

Would love to understand the discrepancies better.

[Ifonly]

I know that yesterday at my 341, the trustee asked another couple about $637/monthly in 401K contributions. They both said that they don't contribute to a 401K and the lawyer *thinks* he miscategorized it. Seems the trustee was going to have a problem with that. They didn't mention our 401K loan repayment at all. I suppose common sense prevails on that? If you make your people convert it, they're just going to have to pay more federal and penalties leaving them less money. Although I'm probably naive and common sense has nothing to do with it.

[rpg1977]

Im in sw Ohio and am paying back a 401k loan. My attorney just needed to know the payoff date..which is in 2 years as well. Then she put in the filing "debtors will use the extra money after the 401k loan is paid off to purchase a new vehicle since their current one would be almost 10 years old by then"

She said the trustee wouldnt have an issue with it.

[justbroke]

What confused me is a CA bk lawyer's blog states that according to a May 2009 case decision in the 9th Circuit, 401K loan repayments are not a debt and cannot be considered a necessary living expense

That's on a Chapter 7 case. There is pretty good caselaw that shows that 401(k) loan repayments are "not" allowable expenses when determining abuse in a Chapter 7 case (under 11 USC 707(b)).

In a Chapter 13, the Bankruptcy Code clearly allows loan repayments under 11 USC 1322(f) and further defines 401(k) continuing contributions as not disposable income. Just as you posted.

So the issue is Chapter 7 versus Chapter 13. They are treated differently between these two Chapters in the Bankruptcy Code.

[scla]

401K Loans and Contributions

Generally in California, 401K Loans are treated as deductible from your disposable income in a Chapter 13 Plan. 401K Loans or contributions are not allowed deductions in a Chapter 7 bankruptcy. 401K Contributions are also not allowable deductible expenses in Chapter 13 bankruptcy. Although this is where it stands in California, this does not mean that new or current circuit court or district case law decisions in other states could have altered how other states treat these two items in a Chapter 7 or Chapter 13 bankruptcy. California is part of the 9th circuit and follows 9th circuit precedent where applicable. There may be other opinions in other circuits that affect the precedent set for treating these two items in other states.

[klandsb]

agreed to disagree with my lawyer on this issue

I have 2 loans which currently I pay around $ 286 a mth on but in a couple months it should be down to around $120 mth. I also contribute 5% of my income to my 401k (100% company match up to 6%) .. So I was thinking both would go twds mthly expenses. Lawyer says he is not comfortable with that and thinks trustee would have problem.. So he just entered contributions and left loans off...
So I am wondering does he really think the trustee would have a problem.
Or does it put me in negative DMI and a possible Chapter 7...
This question haunts me but I realize I do have a steady income and its possible to pay something back . WIth his figures about $300 mth after secured creditors are paid which he also says have to be paid in the plan.
I sent him a email with the section 1322 & also 1325 of the bankruptcy laws which pretty much spell it out but he still wasnt convinced so I figured he is the lawyer... Now wondering...

[BuckeyeGuy13]

I'm in Southern OH district and the trustee/court is allowing my 401(k) loan payments as an expense. When it is paid off, the dollar amount going towards the loan will be added to my CH 13 payment. My payment will go from $1000 to $1097.

[walkthaplank]

In Southern California, they would allow me to contribute to my 401k or pay my 401k loan, not both.

[klandsb]

walkthaplank... maybe thats why my lawyer wasnt comfortable with both . Also, my contributions will last for the entire 5 yrs whereas my loans wont ...
thanks for the info

[BuckeyeGuy13]

I should have expanded my response. I'm in Southern OH district, as previously stated, and my trustee is allowing both contributions and the loan repayment. He allowed my contribution to stay at 6% to get full company match.

As has been stated before, we seem to have a reasonable trustee here.