401K loan

[manyquestion]

Can you take a loan from 401K while in chap.13? Money would help with unforseen expenses that have popped up during bankruptcy.

[LadyInTheRed]

Well, technically you won't be incurring debt because you are taking a loan from yourself. But, I woudn't take one without talking to my attorney first. You may need the trustee's permission anyway. There may also be other options like getting a temporary reduction or foreberance in plan payments to allow for the unforseen expenses.

[daleintampa]

The 401k loan is fine. the bank loan is a No-No. The Trustee cant tell you how to run your 401k. Just keep in mind, what you pay back each pay period wont make your DMI go down.

[AngelinaCatHub]

PLEASE do a search on the consensus of what you are attempting to do, BAD! You are here for guidance. I did the dirty deed and highly regret this as I took this money to pay debt not secured. I lost my @zz. You will not ever recover from the interest and the penalties you are about to lose. Consider if this is unexpected debt, attempt to go to your lawyer or Trustee and do your best to avoid making a BIG mistake. Only my opinion, that's all you will get here is opinion, as well as experiences good and bad. 'Hub

[lrprn]

Hub is 100% right. Since you have encountered an unexpected short-term financial problem, go to your lawyer before doing anything else and find out what options are possible before borrowing against your retirement. Most trustees are reasonable - they often allow a Ch 13 payment or two to be skipped to cover sudden financial emergencies. Ask your lawyer to contact your trustee to see if this is an option to get over the financial hump. That's the very best thing to do first.

Now if your financial emergency isn't short-term, then talking to your lawyer about what's happened is still the very best thing to do.

[espo1357]

I think you are all correct in saying that it is best to call the lawyer and get approval...

but I know of a man, many years ago who filed and was confirmed, and is still in thier BK today, and they took out a 401k loan and nothing happened. ):

It is best to be prudent, but I am just sayin.

And maybe I am wrong, but this BK thing is just a big business for the lawyers and trustees to make money, and for them to dismiss on a 401k loan would be very unlikely IF the case is confirmed. Definitely don't do anything with it in a Chapter 7 until you have discharge. But, in a 13, it SEEMS ok. Again, being prudent is probably the good move, and if you have a good reason, then I don't see how they would say no, as the lawyers and trustees need the business too.

[newbie2]

2 problems with this idea come to mind: First, all Chapter 13 plans state that "all disposable income be paid in to the plan". By re-paying the loan (even if it is to yourself) then you will be showing you have disposable income. Also, if you are having problems with unexpected expenses then you need to sit down with your attorney and possibly ask for a suspense of payments for a short period of time (to pay for those expenses) OR have your plan amended so that you can successfully make it through the plan.

[justbroke]

As a former Chapter 13 debtor, let me just say that a 401(k) loan while in a Chapter 13 is not only a bad idea, it's indicative of a budget problem that will probably plagued the debtor. If the plan is that difficult to deal with, seek advice from your attorney and see if the payments can be lowered. Taking a 401(k) loan will give you a "temporary" injection of cash, but the payments taken out of your paychecks (out of net pay), will decrease the amount you are getting for expenses each month.

That will eventually compound and mushroom into an inability to even keep up on Chapter 13 Plan payments.

[AngelinaCatHub]

I think our Host has gotten the idea. Not knowing the untold disaster, the second disaster would be throwing 401K to the wind. Once hit, it will be hit again as human nature sees "relief" and when needed the most, it isn't there. From one who made this mistake, I once had throw-away money before the cause of my bk and bad health occurred. Now, just to have $200 extra dollars a month would be Soooooo nice. We currently live on SS and a bit Mrs. brings in part time. That is fine for the lesson was good and we adapted and are happy. But boy did I 'efup' when I broke into the 401K. 'Hub

[LadyInTheRed]

Actually, taking a 401k loan isn't always a bad idea from an investment choice. I took a loan from my 401k to pay off a cc debt about a year before BK even occurred as an option. Don't get me wrong, I completely regret taking that loan to pay off unsecured debt. Very bad idea. But, with what happened to what remained in the 401k since then, the 4% I am paying on that loan is a better rate of return than the rest of the fund has averaged. That might change before it's paid off. Who knows?

I do agree with the other warnings about taking a 401k while in a Chap 13 and that the OP should take a hard look at his/her budget and figure out a way to set money aside for future unanticipated expenses. But, the OP can't go back and fix the past and has to deal with the current situation. If there are no other options to pay necessary expenses, like a forbearance on plan payments, and the OP's attorney says it's okay, I don't agree that taking a loan is throwing retirement funds to the wind. It may not turn out to be the best investment, but it won't be the end of the world. It should just be the last resort.

[catleg]

I agree with Lady for a couple of reasons.
Your 401k may have lousy investment choices.
The market is kind of frothy so it's probably not a bad time to sell.
But you might consider taking enough "extra" to cover the loss of income in your plan.

[CCB35]

if you dont want to get a 401k loan ,ask for a hardship withdrawal.i did this because my wife was out of work for 2 or 3 months.Before doing this ,i had asked my attorney about a month or two deferral because she was in the hospital ,he told me that my trustee wouldnt go for a deferral.i had heard of this being done ,but not for me apparently

[justbroke]

While it's my personal opinion, a hardship withdrawal is one of the worse things when it comes to a 401(k). You're not borrowing against your retirement, you're stealing from it. (Just a pun.) I'd tell someone to borrow rather than steal from their retirement, since the argument that you're actually forced to pay it back, with interest, has some merit.

[manyquestion]

I have a little over a year to go on 60 month plan and just wanted to take a small 401K loan to help get to the end of plan. Would the Trustee find out and would he care if I took loan. Just wondering, the few hundred dollars extra each month would really help.

[justbroke]

I have a little over a year to go on 60 month plan and just wanted to take a small 401K loan to help get to the end of plan. Would the Trustee find out and would he care if I took loan. Just wondering, the few hundred dollars extra each month would really help.

NEVER EVER borrow to get to end of plan without first, speaking with our attorney, and then running it by the Trustee. The way the law is now, you can't "buy" out of a plan early unless you are paying 100% of the allowed unsecured claims.

I have seen cases where someone did just as you suggest, and all that happens is, they just wasted the money because the Trustee will take that money, distribute it to unsecured creditors, and then continue to demand your monthly payments at the current set rate! (Don't worry, as some attorney made this mistake as well.)

If you were to tell me that you'd take a "small" 401(k) loan and use it to cover expenses over the next 3-6 months, I might be inclined to look the other way. (However, I'd have to define small as a percentage of your income and that the resultant monthly payment deducted from your pay, won't cause other issues.) While a 401(k) loan taken late in the Plan probably doesn't need to be communicated to the Trustee, you certainly should run it by your Attorney and make sure that it doesn't put you in jeopardy of not being able to make plan payments, and fail in the last few months (talk about falling right before the finish line).