401 K assets

[ABC]

My attorney says that 401 K assets are protected up to 1 million.

My question is what if during the BK I cash out some of the 401k. Does it now become unprotected ?
What I'd like to do is put in a separate account and set up Bill Pay to trustee to ensure a successful 13. I am commissioned an income can swing wildly. I am very worried about being successful.

Secondly , what if it were a 401K loan vs cashing out ?

[walkthaplank]

This is a question for your lawyer, but yes if you pull out 401k money during your plan, the amount withdrawn is no longer protected unless covered by any other remaining exemptions AND you get to pay taxes and penalties on that money that you didn't get to keep. 401k loans without a court order may get your BK dismissed. You are not allowed to incur debt without permission during the course of your plan. Yes you are technically borrowing from yourself, but you are doing so through a 3rd party administrator and paying interest on that loan. Defaulting on that loan to yourself also has real consequences.

[DeadManCrawling]

I can see where this might look attractive, and even make sense.

That said, I wouldn't think of it until talking to your attorney. I doubt it will fly.

It WOULD be an incredibly attractive method to someone with protected assets in 401k, but wild swings in income, to, as you say, ensure a successful plan. The more likely result, unfortunately, is that the trustee would simply seize this new "income" and force your payback percentage higher, leaving you on the hook yet again, to yourself and the IRS.

Please let us know if attorney has any answers, and good luck.

-dmc

[ABC]

Seems like 5 years of hell.

[woeisme]

You need to compare it to the alternative of not filing to see if the "5 years of hell" is worth it or not for your particular financial situation. For some it is, for some it isn't.

[ABC]

Only very large unsecured 2nd mortgage is keeping me in.

It's either that or Short Sale which is financially wiser but we decided just to not move for many reasons other than financial.

[DeadManCrawling]

One thought-If your plan is a 100% plan, I wonder if this would be ok to do. Seems like it should be, since all get paid over the plan life. Just thinking aloud.

[ABC]

I don't know what 100% means. If I could pay 100% of what I owed I would.

My second mortgage is well into 6 figures, I doubt they'll get 10 %.

[AngelinaCatHub]

I don't know what 100% means. If I could pay 100% of what I owed I would.

My second mortgage is well into 6 figures, I doubt they'll get 10 %.

The 100% gives you five years without penalty and interest. It is assumed you would not incurre additional debt.

The consensus on this forum has been "don't rob from your future' by taking out funds from 401k. Trust me, you will never put them back and then the money gone does not work for you. The penalty is very high and taxes. Everyone is right that it becomes a hope chest for your trustee.

I've been there and am there. The future comes fast and you will need all the money you can get as SS just don't cut it. 'Hub

[ABC]

I am Ok with the penalties just not with anyone taking it after I liquidated some.
I get 100% match in stock which has gone up rapidly so even after taxes anything I take out would be about 4 x's the value of what I paid.

I am strictly talking a "what if" to keep the plan successful and not miss a payment. The payment reductions afforded by the plan are really less than I pictured them to be.

[walkthaplank]

ABC, how much debt are you talking about? Secured and unsecured.

CH13 has a ceiling for allowed debt. Higher than that and you must file a CH11 if you cannot qualify for a CH7.

Unsecured debt cannot exceed $336,900 or secured debt cannot exceed $1,010,650.00.

[AngelinaCatHub]

I am Ok with the penalties just not with anyone taking it after I liquidated some.
I get 100% match in stock which has gone up rapidly so even after taxes anything I take out would be about 4 x's the value of what I paid.

I am strictly talking a "what if" to keep the plan successful and not miss a payment. The payment reductions afforded by the plan are really less than I pictured them to be.

You have proven my point on 401k. It seems you have a wonderful plan. Let it work for you. If you are worried about payments on time, eek out an extra payment, and pay it up front, dated for the next month ahead. You will always be up to date and you won't be late unless you fall two behind. Otherwise if you fall two behind, you will be hitting the 401k over and over. You then have a cash flow problem.

Do what you feel is right for your situation. Only you know that. 'Hub