401 K Loans

[deadbroke99]

I read that you can't use the payment on a 401K Loan on your means test or your bankruptcy expenses at all? Is this correct? We pay $200 a month on 401K and would hurt us if we can't include it. It's not like I can not pay it back. As long as dh is employed there and has a 401K it must be paid.

[TEW]

how long ago did you take out the loan if it's less then 6 months ago it will be counted as income.

[deadbroke99]

how long ago did you take out the loan if it's less then 6 months ago it will be counted as income.

It was two years ago.

[happy_ira]

I will definitely add my $0.02 here because I had a similar situation.

I filed Ch 7 in August 2008. Prior to that, I had taken out ~$50k in loans against my 401k. (We really needed the money to pay for expenses.) About 50% of the loans were taken in 2006, the rest was in 2007 and early 2008.

Originally, after having met with my initial atty (I switched in middle of my case) and having read things online, it seemed as though I should NOT deduct the 401k involuntary loan payments (automatically deducted every two weeks from my paycheck--I believe in 99% of the case, the loans are automatically involuntarily deducted). The monthly amount of these payback were $1,200. So, as you can imagine, that is a BIG number for me that I could not list as an expense on my schedule I/J and Means Test.

After the filing, I got my 341 notice and the BK Trustee asked his usual questions (nothing major). Then, the US Trustee chimed in abotu my case (he had questions since I am a high income earner). (You can do a search on my name and come up with all the details of this very long case and my battle against the UST.)

So the UST asked questions about some of my other expenses.... when it came to the 401k, he asked if I was contributing to it for retirement with regular contributions. I told him I was not since I could not afford it, and, in fact, I had involuntary payback on loans. He said "Where? It is not listed on your schedules. You absolutely need to list the withdrawals as a deduction from income."

Now, I do not know where you are located or the rest of yoru situations details, but this UST was from the DOJ office in New York City, which, arguably, sees one of the highest bankruptcy filings annually (perhaps in close competition with LA). The UST was very firm that, even though listing it *helped* my case, it would not be correct to ignore my involuntary payments. Ergo, I filed an amended Sched I/J and Means Test with the new figures.

Sooooooooooo, up to you whether or not you want to include the payments or not, but now you have heard it from the UST's mouth in New York: INCLUDE THEM!