401K Car Loan after BK...how to do it

[doingpoorly]

I will be giving back my vehicles in bk, but need a vehicle so we thought the smartest way to get a loan at a rate we can afford is to loan the money to ourselves from our 401K, but since you can't expense the payments to a 401K how can we get a vehicle using 401k money without showing disposable income?
Just because I don't have a vehicle, there must be some allowance for transportation, isn't there? I will have these expenses after the bk just not before, what should we do?
I would get a car and a loan now at whatever rate and then pay it off after bk but how in the world will I get approved when I already have 2 car loans and income isn't what it used to be? I wanted to buy a used vehicle from a private seller and not a dealership, would any bank in their right mind give me a loan? I don't believe I should be approved for another loan right now, wouldn't I give off bad vibes to the lenders. LOL
FYI- right now I have good credit, although a little lower than before since some cards have reduced my limits, and I am current with everything (for the time being, until everything catches up with us)
suggestions

[AngelinaCatHub]

Whatever you do, DO NOT MESS WITH YOUR 401k. You will be hit with more penalties than you can imagine, including the IRS.

You want to leave the 401k alone. That is Retirement, and can be exempted.

Buy a used car that is $1000.00 or less sitting on the side of the road. There are many excellent bargins out there that you can afford.

I purchased a GMC S-10 with 95k for $2500. Everything worked on it and it was top notch. The Trustee would probably leave it alone as it would be your only transportation.

PLEASE............DON'T.............MESS with your 401K.

Remember, no one is purchasing new cars, there is a glut of them and a bigger glut of used. Your best bet is to find an independant that wants to unload.

I've been there, my friend. 'Hub

[doingpoorly]

I don't want to touch the 401 k until after the bk and once all of the other debt is gone I will be able to afford the small payment that I will need to make on it. I have not been able to find a reliable/not to high mileage vehicle that will seat 7. The only vehicles that will work are a full size van (to much gas needed for that) a big suv (to much money) or a mini van. The mini van is what will work best, but with only $1000 in allowable equity (I live in FL) I can't find one that I wont' be afraid to drive so far. I want to buy a mini van for $3000-$5000 after bk as I won't have the money before then. I have 4 kids, a dh and a mom that I will have to cart around every single day. Dh will not have a vehicle anymore and I will have to drive him to work 60 miles away, then drive mom to elder day care and then pick up the kids at school in the afternoon. (can't ride the bus in afternoon, they stay late for tutoring). In the evening, I will have everyone in the car to make the trip home. Now that you have more info. Suggestions
thanks

[eddiep]

I know angelinacat doesn't recommend messing with the 401k, but if you take a LOAN on the 401k you wont get hit with the tax and penalties that you would if you cash out your 401k. If you take the loan out before your bk it will be counted as income, but if you lose your job and can not pay back the loan you will get hit with the tax and penalties. I don't know if you can claim a loan payment to your 401k in bk.

[doingpoorly]

Right, I want to take a loan AFTER the bk, but when I go to list my expenses it will look like I have to much disposable income because I won't be including any car payments. I can't think of a way to get a vehicle loan before filing bk because I already have two car loans(they will be going back). What kind of expenses for transportation are allowed if you don't have a vehicle? They must allow for some expenses other than car loans. Although it will look silly since everyone knows there is no public transportation here.

[Logan]

Whatever you do, DO NOT MESS WITH YOUR 401k. You will be hit with more penalties than you can imagine, including the IRS.

You want to leave the 401k alone. That is Retirement, and can be exempted.

Buy a used car that is $1000.00 or less sitting on the side of the road. There are many excellent bargins out there that you can afford.

I purchased a GMC S-10 with 95k for $2500. Everything worked on it and it was top notch. The Trustee would probably leave it alone as it would be your only transportation.

PLEASE............DON'T.............MESS with your 401K.

Remember, no one is purchasing new cars, there is a glut of them and a bigger glut of used. Your best bet is to find an independant that wants to unload.

I've been there, my friend. 'Hub

I disagree. First, there are no penalties from the IRS or anyone else when borrowing from your 401K. There can be a one time 'setup' fee. For me it costs $50 to borrow from my 401K.

Also, where else can you get a loan at 3.25%? That's the going interest rate right now and you're paying yourself back.

And please don't give me this your paying tax twice on the interest crap. Would you rather pay yourself interest at 3.5% and let that interest payment grow over the next how many ever years until retirement or would you rather pay a bank 7, 8 or 12% interest every month and see the money disappear?

I borrowed from my 401K a year ago and listened to everyone else complain how their 401K's have turned into a 201K. I stopped contributing for various reasons but my loan is my 401K contribution for now (my company does not match) and I just paid off one of the 2 loans I had and will pay off my other loan at the end of the year assuming I am still employed.

Good Luck,

Logan

[StartingOver08]

Right, I want to take a loan AFTER the bk, but when I go to list my expenses it will look like I have to much disposable income because I won't be including any car payments. I can't think of a way to get a vehicle loan before filing bk because I already have two car loans(they will be going back). What kind of expenses for transportation are allowed if you don't have a vehicle? They must allow for some expenses other than car loans. Although it will look silly since everyone knows there is no public transportation here.

Well, you might try a strategy like this:
1) Put on your Statement of Intentions you plan to reaffirm 1 or 2 vehicles, then if you are current with the car loans the payment is allowed in your expenses
2) You could try to renegotiate one or two of the car loans to something you can afford (after the filing date you speak directly with the BK dept of the lender)
3) If the lender would not renegotiate (some will, some won't) you just change your statement of intentions to surrender. Then you surrender one or both vehicles.

This way the vehicle expense is included in your BK. This is a legit strategy. You have no idea if the lender is going to renegotiate the payment or not until after the filing. One of my lenders did and I kept the vehicle. The other did not and I surrendered the vehicle. The only thing I had to do was change the statement of intentions to reflect I was surrendering the vehicle once I found out the lender would not budge.

[debtmonster]

I am not understanding why people are not learning their lessons from a BK. There should be NO MORE FINANCING. Buy cars for CASH MONEY and call it a DAY! Instead of making car payments to the bank, make them to the mechanic. IT'S CHEAPER.

When my cars go back, NO MORE FINANCING FOR ME! I am done with that BS.

[Logan]

I am not understanding why people are not learning their lessons from a BK. There should be NO MORE FINANCING. Buy cars for CASH MONEY and call it a DAY! Instead of making car payments to the bank, make them to the mechanic. IT'S CHEAPER.

When my cars go back, NO MORE FINANCING FOR ME! I am done with that BS.

No more financing? Are you paying cash for your house?

What if you have to drive clients around like I do. A 5K car won't cut it.

[UhOh]

Actually I started reading the thread with interest. I was thinking "hey that's right, borrow from myself" I never thought of it. that's how I will get a car after the BK is done. Good idea.

Then I read down to Debtmonster's comment. At first I have to admit I was thinking his point is not practical and I was still interested in the original post.

I went on and read other things but something hit me. DEBTMONSTER YOU ARE RIGHT!!! We must simply get out of the use credit to live mentality that got us all onto these boards.

Cheers.

[Logan]

Actually I started reading the thread with interest. I was thinking "hey that's right, borrow from myself" I never thought of it. that's how I will get a car after the BK is done. Good idea.

Then I read down to Debtmonster's comment. At first I have to admit I was thinking his point is not practical and I was still interested in the original post.

I went on and read other things but something hit me. DEBTMONSTER YOU ARE RIGHT!!! We must simply get out of the use credit to live mentality that got us all onto these boards.

Cheers.

There is a balance. My GF has 9K in savings and a car loan of 7K. She could pay off her car and only have 2K in the bank which is not enough if there is some kind of an emergency. Having no debt is great but there has to be a balance. She also has a student loan of $7500 but without that debt she wouldn't be a nurse and have the job security she enjoys today.


If you want to go buy a plasma TV--Use Cash. But for necessities such as cars, education and a place to live it is acceptable when used wisely.

Logan

[OhioFiler]

Actually I started reading the thread with interest. I was thinking "hey that's right, borrow from myself" I never thought of it. that's how I will get a car after the BK is done. Good idea.

Then I read down to Debtmonster's comment. At first I have to admit I was thinking his point is not practical and I was still interested in the original post.

I went on and read other things but something hit me. DEBTMONSTER YOU ARE RIGHT!!! We must simply get out of the use credit to live mentality that got us all onto these boards.

Cheers.

If you're borrowing from yourself you're not really going into debt.

[lrprn]

I disagree. First, there are no penalties from the IRS or anyone else when borrowing from your 401K. There can be a one time 'setup' fee. For me it costs $50 to borrow from my 401K.

This is how *YOUR* 401K works, Logan. It's not how most 401K early withdrawals work.

When my husband borrowed against his retirement fund, he was charged interest and he also had to pay the entire withdrawal amount + interest back into his retirement account within one year. When he wasn't able to do so, we got hit with a 10% IRS tax on the amount that was still outstanding after a year.

This is how most 401K early withdrawals work. Be glad yours was an exception....but it is the exception.

[LuciluS]

With the economy like it is, those of you are wanting to borrow against your 401K are you 100% GUARANTEED YOU WILL KEEP YOUR JOB! If you lose it, your are SOL. Taxes, Interest, Penalties Galore.

There was someone who posted about this not too long ago who had borrowed against their 401k, filed Bankruptcy, lost their job and Trustee said the Loan was Income. I believe the last discussion was Chapter 13, which I don't believe any of us who post here want to be pushed into that.

Just Food For Thought.

Luci

[dogbone33]

I am not understanding why people are not learning their lessons from a BK. There should be NO MORE FINANCING. Buy cars for CASH MONEY and call it a DAY! Instead of making car payments to the bank, make them to the mechanic. IT'S CHEAPER.

When my cars go back, NO MORE FINANCING FOR ME! I am done with that BS.

I can't save the money for a car. AND I can't buy a 5k car to tow a 3800 trailer. It won't cut it. I need a decent heavy duty truck.. I can't pull up to peoples houses in a shitty car.....