Is this allowed (UST)?

[Bob2457]

The UST is involved in my case (Illinois). They are questioning my deductions, and stated that I could take a withdrawal from my 401k to pay off my car loan, and that would then give me disposable income which would then kick me into a chapter 13.
Is it possible that they could make me do that??

[despritfreya]

The UST cannot "make you" use the retirement to pay off the car. What the UST can do is assert that you are abusing the system and should not be in a Chapter 7. If the UST gets the judge to agree with that position your case is either dismissed or converted based upon your decision.

You need to discuss this with an attorney.

Des.

[Bob2457]

I know they can’t “make me”...not what I meant.
What I mean is, is there precedence for it or do judges allow that? Seems like many people could be kicked of told to just take a withdrawal.
I have an attorney and she is aware.

[justbroke]

What Des meant was as simple as stated; they can't make you payoff your car. There is precedence when it comes to a totality of circumstances or bad faith objection if the UST can show that you are not deserving of a Chapter 7 discharge. Whether or not the UST could show that your retirement funds are somehow fair game, is a matter for a judge, through a hearing/trial, to determine.

If your attorney doesn't know what to do, then the suggestion would be to stay the course and make the UST prove that you are not deserving of a Chapter 7 discharge. I don't think anyone, ever, should rob their future to pay their current debts. Retirement plans are exempt for good reason. However, if you're sitting on $500K in your 401(k) (I have friends north of $1M in their 401(k)s...) could the UST argue that you are solvent? I suppose that's your real question. I do not have the answer to that question.

I would think that any (seasoned) bankruptcy attorney would tell the UST, "good one... go fish!"

I would not worry about it unless your attorney is worried about it... and you pay them to do all the worrying.

[Bob2457]

It’s less than 100k in the 401k account.
She is worried. Told me to prepare to convert if need be.

[justbroke]

So hope for the best, and prepare to convert to a Chapter 13 should they try to push you that way. I would still not "rob my future" to pay for the present. Whether or not the UST would be successful at any "totality of circumstances" or "bad faith" objection hearing, is anyone's guess. That is likely why your attorney says to just be prepared.

Hopefully your attorney told the UST to "go fish" and that you're just waiting to see if the UST decide to file a complaint (a/k/a an adversary proceeding). The complain, or AP as they call them, would be a hearing to determine if the UST is correct in their pleading (that you are not deserving of a Chapter 7 discharge).

Too much to speculate at this point. We don't know under what theory the UST is operating. Unless and until they (the UST) file a motion or complaint, then you won't know their thoughts or what law (or precedence) upon which they rely.

(The reason I say don't "rob my future" is pretty obvious; your retirement savings are difficult to regain when you take a distribution. As for why I wouldn't pull money out anyhow, is that you will end up in a Chapter 13... having robbed your future.)

[Bob2457]

Ya. She said that.
The ball is in their court and I’m just waiting to hear.
Does anyone ever win a hearing, or is it pretty much guaranteed the UST will win?

[shipo]

To add to what despritfreya and justbroke have written, if given the option of gutting my 401K and then entering a Chapter 13, or sticking to my guns and working toward a Chapter 7, I'd choose the latter. All this said, I suspect there is more to this story; do you have a high income and LOTS of unsecured debt? Do you have an unusually high monthly car payment relative to your income?

[justbroke]

Does anyone ever win a hearing, or is it pretty much guaranteed the UST will win?

It's not good to use any anecdotal evidence to suggest that the UST sometimes, mostly or always win. I would simply say that they lose some and win some. Your specific court, BAP, appellate and other factors may apply.

As shipo speculates, there may be more to the "totality" of the circumstances. I have not personally seen the UST go after someone, but if the UST is already interested in your case, it's usually that a.) you are an over-the-media income filer, b.) you have relatively high expenses (home, auto), c.) a business is involved (you own/operate a business and the complexity dragged in the UST), and/or d.) you are contributing a lot to that 401(k) while having any combination of a, b, or c.

This specific issue is just so nuanced, that it has to be the totality of the circumstances.

[Bob2457]

I am over the income, but not by a crazy amount. My deductions let me legitimately pass the means test.
My car payment isn’t crazy, but if that were eliminated, I would fail the means test, which is why I think they are doing what they are doing.

[justbroke]

I read this as a normal case where the United States Trustee (UST) picks apart over-the-medium income cases. It's almost inevitable that it happens. As I wrote, they win some, lose some. They often back off after the attorney provides "reasonable" responses to their questions (don't ask me what is reasonable because it's too fact-specific). Sometimes they will wait until the last day and file a Dischargeability Complaint to seek denial of the Chapter 7 discharge or conversion.

So, thanks to shipo we can now safely say that you are over-the-median income, which will always draw the scrutiny by the UST. It's something that most bankruptcy attorneys tell their clients; over-the-median in a Chapter 7 will draw scrutiny by the UST. It's also something that is often overcome. Sometimes the UST is just blowing smoke. Sometimes they are serious. There's no way to tel if they are serious unless and until they file a complaint.