Loan against my 401K

[bntactnt]

I borrowed money against my 401K and used it as a down payment for my residence. I am considering filing Chapter 13 to save my house since I am behind on the first and second mortgage. Certainly my attorney will do a lien strip on the second since there is no equity in the house. My main question is the loan against my 401K. Does this get listed on Schedule F - Unsecured Non-Priority? Also I know my 401K is 100% protected or exempted in the bankruptcy estate. If I list this on Schedule F, what kind of action or recourse can my 401K administrator do? Do they have any rights to offset this loan against my 401K once they receive notification that I file bankruptcy? Please review and let me know.

Many thanks!

[kornellred]

A 401(k) loan payment is an expense that subtracts from a debtor's disposable monthly income in a Chapter 13 filing. I know this because I am in Chapter 13 and I have 2 401(k) loans that I am paying back, or else I would be paying $600 per month more to my trustee.

What I do not know is if this is universally true, or if it is dependent upon each individual situation. 401(k) loans can revert to distributions, in which case the borrower would be taxed for the full amount of the loan plus a 10% withdrawal penalty.

When I had my first BK consultation with my attorney, I assumed that my loans would revert to distributions. I was gratified to find out that this was not to be the case. After all, I am paying myself back, with interest, to the tune of $600 per month.

Bankruptcy law is complicated, so consult with an attorney before you make any assumptions based upon my experience.

[catleg]

Your 401k loan is not a debt, and the loan itself shouldn't really be scheduled anywhere on the BK paperwork. (there's a big statement, anyone know better on this?). The payments on the loan will be documented as part of your disposable income calculation.

In a ch13 your future income is considered "property of the estate" to the extent that it is considered "disposable income"...as determined by the B22C means test form and schedule I&J.

Payments you make out of your future income to pay back the 401k loan are not considered "property of the estate". So they're out of reach from the trustee, though often the trustee will make you "step" up your plan payments if the 401k loan payments terminate (loan gets paid off) before the end of your ch13 plan period.

In many cases it is a good strategy to take 401k loans if you can spend the money in a way that won't create an asset for bankruptcy and won't create a preference. Paying off a federal student loan for example.

[HHM]

Cagtleg is right, your 401K does NOT go on your schedule of creditors, it is expense on schedule J.