401k Loan payments paid through trustee?

[tammygirl1]

Has anyone ever had their 401k loan payments paid through the trustee? I got my (3rd) final petition draft yesterday in the mail and it is now being proposed to be paid within the trustee payment. The loan is currently taken out of my paycheck weekly...Would our attorney contact them all to get this changed once we file and start paying or is this something I would do? I had not heard of anyone having their loan within the payments on this forum from what I have read so far. I will email my attorney tomorrow about this and as I have other questions about this draft. They had added the loan into the plan and we have to fund a certain amount due to back taxes/child support and the payment amount doesn't account for it all now. I am sure we will get it all straightened out but its scary to see that I am the only one catching these things on the drafts. I would hope with all the money we paid most things would be caught by the lawyer and paralegals. Maybe we need to set up a face to face to go over this line by line and straighten out once and for all before we file.
Another question, He has us putting our initials next to where we will really be signing on the petition..what does this represent? This wouldn't mean we are signing the final petition right? We didn't have to do this 1st couple of drafts.
Thanks in advance for any advice and sorry if these seem like stupid questions but this forum is such a great knowledge base..I would be totally lost and wouldn't have a clue if that there are mistakes if I had not found it.

[NoTomatoCan]

That seems very unusual.

I have never heard of paying a 401k loan through the trustee. In fact, most (all?) 401k plans require that the loans be paid back via your paycheck unless you are paying it off in full.

You said this was your 3rd draft from your attorney... Are you sure he didn't just do that by accident? Maybe this was just a mistake or oversight by your attorney.

[tammygirl1]

Thanks Notomatocan, thats what I thought. I searched and couldn't find anything. The 1st draft did not have it proposed, the 2nd did but it had 0.00 for payment and 0.00% in interest rate. I highlighted it when updating the draft and asked how this was going to be paid since it was payroll deducted..and the 3rd (mailed within a week of me sending 2nd back) came back with averaged monthly amount over 60 months but it is supposed to be finished before our plan would be finished. I am going to send him a detailed email and suggest maybe a phone call. We first went to him with tax issues as he specializes in them but thats when the childsupport stuff rearred its head so we went back for 13 consultation. We were very comfortable with him but now I am wondering if my gut was wrong....We have already paid 3275 and have another 2649 going to be rolled into plan. I had not found this forum before I had put the retainer down and learned of going to multiple lawyers. He is supposed to be really good but ...Hummph...just very nervous now.

[catleg]

The 401k loan is not a debt to be listed on the bankruptcy schedules, therefore there is no way for the trustee to make payments on it.

Those payments are not property of the bankruptcy estate and they should continue to come out of your paycheck.

[tammygirl1]

I shot off an email to my lawyer last night and got a response first thing this morning (he has been extremely prompt with his replies, I have to say). He says they will update the draft and resend but did not tell me if it was an oversight or not....He said that once we file if payroll stops withdrawing weekly payments to let him know? I sent the email straight to him and did not cc the bk clerk so that he saw and had to respond to my question himself. I will wait to see new draft...hopefully it will all be straightened out this time

[LadyInTheRed]

Bankruptcy Code Section 1322(f):

A plan may not materially alter the terms of a loan described in section 362 (b)(19) and any amounts required to repay such loan shall not constitute “disposable income” under section 1325.

http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00001322----000-.html

A 401k loan is a loan described in section 362(b)(19). Since the terms of most (if not all) 401k loans require payment via payroll deduction, your payments will continue to be deducted from your paycheck and should be deducted from your income when calculating your DMI. You probably couldn't stop the deductions if you wanted to.

I consulted with one attorney who told me my 401k loan would be included in my trustee payment. I knew that wasn't true and told her so. She looked into it and contacted me later to tell me I was correct. She thought a 401K loan is from a third party lender and is secured by the 401k rather than a loan directly from the assets of the 401k. Is it possible your attorney is under the same misunderstanding?

He said that once we file if payroll stops withdrawing weekly payments to let him know?

There is no reason that should happen. As Catleg pointed out, the 401k loan is not considered a debt. You are basically making payments to yourself. Make sure neither your employer nor the 401k plan administrator is listed as a creditor. The only reason your employer needs to know anything about your BK is if your trustee requires your payments be made through payroll deduction. The only place on your petition I can think of that your 401k loan should be listed is as a payroll deduction on Schedule I and on line 55 of the means test (form 22C).

I filed 2 months ago and the payroll deductions for my 401k loan have continued and will continue until the loan is paid off, regardless of what happens in my BK.

Also, don't initial anything on any draft that isn't correct. Make them revise until everything is correct.

[tammygirl1]

Thanks LadyInTheRed. At this point, I can only assume that's what he is thinking. I am waiting for the next draft to see if its all straightened out.