Borrow from 401K during Ch 13?

[Alone]

Can you make a loan from your 401 while in chapter 13 for emergencies. I live in south LA. and I am worried that if a hurricane like the ones we had in recent years comes our way. I do not have any money to pay for hotel and food if we leave or fuel for generator if we stay.

[lrprn]

Alone, I moved your question here into its own thread. The original thread was asking about 401Ks before filing, and yours is asking about them after filing.

Can you make a loan from your 401 while in chapter 13 for emergencies. I live in south LA. and I am worried that if a hurricane like the ones we had in recent years comes our way. I do not have any money to pay for hotel and food if we leave or fuel for generator if we stay.

While in a Ch 13 plan, you are not allowed to take on new debt without your trustee's permission. Borrowing from your own 401 has the potential to create new debt since a large majority of 401K early withdrawals have interest charged and will tack on a 10% tax penalty if the loan is not paid back within the allowed time period (usually a year). You won't have very much disposable income during your Ch 13 to pay back whatever you take out very quickly.

Ask your lawyer about how your trustee handles 401K loans during bankruptcy. You have to be very careful, because if your trustee is stickler, if you cash out part of your protected retirement funds and it isn't protected by your exemptions, depending on how much you take out, it might be seen as now unprotected cash that could be taken to distribute to your creditors.

However, for a reason like a hurricane, it's hard to imagine that a New Orleans trustee is going to say no or take the cash if the early withdrawal 401K option is truly your only alternative to get out of town and keep your family safe.

The far better approach in this situation is to set up a strict family budget and cut out everything that is not an absolute necessity. Take the saved money every month and deposit it in an account that is your back up for emergencies. This is not just for hurricanes - it's for everything unexpected that's going to happen during your 13. Car repairs, unexpected medical bills, home repairs, appliance replacements, etc. Then there's no permission needed to take that money and use it any time you need to, including for (god forbid) hurricanes.