Made last payment, would like to take 401k loan

[heychuck]

Hi, I made my last payment into my Chapter 13 trustee last week. I would like to take out a 401k loan for a fairly substantial amount of money. Do I need to wait a period of time before I do this? Are there any more "rules" between now and discharge?

Thanks!

[tobee43]

heychuck! congrats on your successful completion of your chapter 13!!!



your question about you're loan, i'm not certain about, hopefully LITR or jb will be on later, or someone that knows everything about the ins and outs of the 13's.

again, congrats!!

[justbroke]

Technically, you are not allowed to incur debt while prior to discharge. It is arguable whether borrowing from "yourself" is new debt, but there is a payment involved. The terms of your confirmation may spell out whether you are allowed to incur new debt or whether new debt is limited to a certain amount (in some cases, it could allow new debt up to $5,000).

I will not ask you what the loan will cover, but what is the urgency? Could you wait until discharge? Have you thought about the repayment terms and payroll deduction? What impact does it have on your current 401(k) savings and company match?

I would wait until the Trustee closes out your case and determines that you made all payments required under the plan. It would be a painful reality if you find that you are short $2,000 (just an example) but already spent the 401(k) loan on something that could have waited.

Just wondering.

[heychuck]

I need money for a car.

Well, I had hoped that once I made all my payments, the courts or the trustee would not be monitoring my finances anymore. Oh well, what can you do?

[AngelinaCat]

Please do a search on 401k loans here and read of all the sad stories of people borrowing or liquidating their 401k...

[heychuck]

I do appreciate the concern. These forums are great because they go beyond "legal advice" (even though I understand anything on here is not considering legal) and deal with real human emotional issues.

However, I do not plan to take more than I can afford. The reason I got into the Chapter 13 mess was medical related. I never had any problem paying my bills before then, and do not forsee that issue in the future (god willing my families health holds up).

I am still curious, if I want to take a 401k loan, would my trustee or the BK judge have anything to say about that after last payment but before discharge?

[justbroke]

I am still curious, if I want to take a 401k loan, would my trustee or the BK judge have anything to say about that after last payment but before discharge?

Technically, yes. However, that is spelled out in your Order Confirmation Chapter 13 Plan. Typically, those orders do not allow the debtor to incur any "new" debt. While you are technically paying yourself back with a 401(k) loan, it is still a debt that must be repaid and is a forced payroll deduction when you are still employed with that employer.

Having wrote that, the earth would not end if you did (take the loan). I was cautioning you on the merits of waiting just a few more weeks to make sure that the case is going to close "cleanly". There have been several Chapter 13 debtors on this forum who learned, just before discharge, that they had not paid "enough" to meet the plan base, or for some other reasons. I just would not like to see you with a new car and a dismissed Chapter 13. I'd rather read about both!

Edited to add: they are not really "monitoring" your finances. it is just that you pledged "all disposable income" to the plan and to turn it over to the Custody and Control of the Trustee. All technicalities even though you finished paying what your plan prescribed. Was it enough? That is the period between plan competition and discharge; the audit period. Some have actually gone out and obtained car loans between plan completion and discharge. Is it the most prudent thing to do? I can't say. I can only tell you of the potential, albeit low probability, pitfalls.

[toojerm]

A 401k loan doesn't get reported like consumer debt. Simply have the check mailed to you and cash it at your bank. I'm in a 100% plan and have taken two of these loans since I filed 4 and a half years ago simply to stay afloat, and bridge a move (deposits, etc.).