Please respond asap - 401k loan repayment

[LALADY]

Back again.

In 7, no asset, motion to dismiss says 100% can be paid back. Determining whether to convert or oppose. In any event, for CA Chapt 13, I've been told that my 401k loan will be listed as unsecured debt, that payroll deductions can no longer happen (i.e. employer then finds out) even though plan requires payrol deduction--that it must go through trustee instead, that trustee gets 10% of that payment, that if I am in say a 16% BK plan my 401k gets paid back only 16% and creditors only 16%. Sound right? What happens with other 84% I can't repay over course of my 5 yr BK plan/4 yr 40K left loan note (1 year already paid off). Been told only way to repay 100% back to 401 is to repay creditors back 100%. Your thoughts. Need help asap as I need think this through asap.

Argh!

[momofthree]

According to this website (don't know how accurate it is), 401k loans are not considered debt according to bk law. I would therefore assume that they are non-dischargeable in a chapter 13 bankruptcy (being that they aren't considered debt). However, I am far from an expert. You'll need to consult an attorney.

http://bklaw.com/bankruptcy-blog/2009/05/means-test-401k-loan-repayment/

[LALADY]

Hi mom. I know that applies for Chapter 7.

But what about 13, can I repay a 401 loan 100%. What I guess I'm asking is I didn't realize I couldn't pay myself back at 100% and others back at 16%. I have to pay myself back at 16% like other creditors.

Advice I am receiving from different attorneys all differs, so I'm looking to see if anyone here has had a huge loan and how it impacted their plan strategy planning.

Thanks, and any further input appreciated.

[klandsb]

Hello. 401 k Loans can count as secured pmts. I filed 10-21-09... Payments are still being taken out of my payroll check on 2 loans & they could be listed as secured debt pmts on my schedules.. I am sure if they are an outrageous amount you might have a problem or if you make a large contribution it might raise some red flags...

[catleg]

401k loans aren't listed as either secured or unsecured debt. The payments (made out of your future income) are simply "not property of the estate", in other words they are subtracted from your income just like income taxes before calculating your plan payment.

[LALADY]

Thanks for responding. Do either of you have code sections you can point me to? The 401 repay each month is $900 which would have almost zero to unsecured creditors. (The ust said in the chapter 7 I should repay 100% creditors.) Since I'm running out of time as to dismiss, oppose or convert, I need to make some quick decisions. Thanks!!

[LadyInTheRed]

The code section allowing the payment of a 401k loan as a deduction from disposable income in a Chapter 13 plan is Bankruptcy Code Section 1322(f). See the last paragraph at http://www.doney.net/bkcode/11usc1322.htm and follow the links when it references other code sections.

Once you pay off the 401k loan, your Chap 13 payment will likely be increased so that the money going to payoff the 401k loan will be used to pay off unsecured creditors. The trustee apparently believes that that will result in the unsecured creditors getting paid more in a Chap 13 than they would in a Chap 7. If you have to convert, you may want to try to submit a plan that, after the loan is paid off, allows you to contribute part of the $900 to the 401k. My understanding is that reasonable 401k contributions are often allowed in a Chapter 13 (but not both contributions and a loan repayment). Don't know if your trustee will allow it, but it can't hurt to try.

The following quote is from http://hr.cch.com/news/pension/062909a.asp

"The court acknowledged that debtors in Chapter 13 proceedings are expressly authorized to deduct 401(k) loan repayments in the calculation of disposable income. However, the court cautioned, bankruptcy law does not provide a comparable right for Chapter 7 debtors."

If you are interested in understanding why you are not allowed to deduct the 401k loan payment for purposes of the Chap 7 means test, you can read the court opinion the article refers to at: http://www.google.com/url?q=http://c...ozFAVqI2cb3Wrg

I hate this ruling. I took a 401k loan to payoff a cc that increased the interest rate and wouldn't work with me to allow a monthly payment I could afford. The fact that the 401k payment can't be included in the means test seems like a punishment for paying a debt instead of filing BK. I guess what it really is is a punishment for not realizing how much financial trouble I was in at the time and considering BK earlier. It didn't even occur to me at the time to do anything but try to pay my debt. Oh well. I would probably have considered a Chap 13 anyway since I will be able to strip an $88k 2nd mortgage. Besides, the 4% interest I'm paying on the 401k loan is probably a better return than what I'd get in the current markets. Rant off.

[LALADY]

Thank you. I will read everything you have provided. So, at initial glance, from your post, I do get to pay myself back before other unsecured creditors. I wonder where one of the attorneys is getting that I have to pay myself back at the same rate that I pay back other unsecured.

So confusing. After three consults I'd be able to get a clear picture as to how to proceed.

Do you think this is subject to being listed as creditor where trustee gets 10%. What about the fact that I need have trustee pay 401 rather than by payroll deposit. I prefer employer not knowing aobut this.

Thanks again all for your help, responses and additional input. Time runs out this Tuesday for filing opp.

[LALADY]

Yeah, I pulled 401 to pay cc that increased rate. Unfortunately, I can't strip my second. I hate the fact that I'm given so little time to get my ducks in a row, not by fault of court/me.

[LALADY]

BBL - got an errand I need to attend to.

[LadyInTheRed]

Thank you. I will read everything you have provided. So, at initial glance, from your post, I do get to pay myself back before other unsecured creditors. I wonder where one of the attorneys is getting that I have to pay myself back at the same rate that I pay back other unsecured.
Well, I'm no substitution for an attorney, all I know is what I've read here and other places, including the links I provided. I'm still putting off making appointments for consults. But, it is possible the attorney telling you that doesn't know much about Chap. 13. It would be interesting to see what that attorney would say after seeing the links I provided. It seems pretty clear from that code section that your 401k is deducted from your income in calculating your DMI. I sure hope so!

So confusing. After three consults I'd be able to get a clear picture as to how to proceed.
Remember, an attorney is not likely to fully analyze your situation during a free consult. They are only willing to do so much for free. You should get more complete and accurate advice after retaining one.
Do you think this is subject to being listed as creditor where trustee gets 10%. What about the fact that I need have trustee pay 401 rather than by payroll deposit. I prefer employer not knowing aobut this.
I don't think that in a chapter 13, the trustee would pay the 401 k loan. It's not considered a debt since you are really paying yourself, so it's not dischargable (that's discussed in that case). It's a payroll deduction which the trustee never touches. I don't know if you even have the power to stop the deduction without triggering a default and a distribution from the 401k to pay off the loan. If the trustee never touches the money, it can't be part of the fee calculation. Besides, the trustee fee should only make a difference to you if your creditors are getting 100%. You'll pay all of your DMI over the 36 or 60 month plan. What doesn't go to the trustee will go to the creditors.
Thanks again all for your help, responses and additional input. Time runs out this Tuesday for filing opp.

Sounds like you filed pro se? You might really find reading that case helpful in understanding the issues you need to consider if you try to oppose the objection. Consider whether the facts of your case differ enough. I only skimmed the opinion, but it seems to hinge on whether you can prove extraordinary circumstances. Good luck!

[LALADY]

Hi again. Thanks.

No, I did not file the C7 pro se, an attorney did it for me.

I've read through the materials at the links. I'll need to discuss it with the attorney.

I'll update the thread as I find out more to keep others informed.

Thanks again!

[alana]

I had to file Ch13 because of my 401k loans. I am continuing to make the payments on them. The only debts being paid in my plan are my car and my attorney. I'm paying $100 a month for 36 months.