I almost messed up 401 MONEY.

[Floridagail]

I wanted to share my dumb dumb mistake in case anyone was thinking of doing the same. I needed to take out money out of my retirement money, to pay attorney,so right before i filed I took out 6000. I was thinking it is protected. Wrong, once you take it out before bkrptcy it is asset. Lucky for me, after fees paid I was within in the wildcard exemption 4000 in Florida. But if I had taken out any more, the trustee would have taken it. THe Trustee mentioned it at 341, but did not ask for it. I told her I took out to pay attorney and catch up household bills.

[Flamingo]

You made the mistake many filers make prior to filing. Taking out the 401(k) to either try not to file BK and pay off bills or use the money for necessities. Most people do that before they start to investigate filing Bk and are shocked that they could have saved that money since it is exempt. Most people don't think about investigating what is involved as to filing BK and really investigate too late. We too utilized my hubby's 401(k) prior to filing (more than six months prior) trying to stay afloat and not file and should have filed way before we did but we thought we were doing the right thing at that time. Thankfully, I did not touch mine. When his (401)K funds were gone and our savings gone, we started the robbing Peter to pay Paul which just put us further into debt. Job loss - 2/01; filing 4/02. Hubby's job loss 2/01 giving us a 70% drop in income.

[pa308]

I also made the mistake of taking a 401k loan to pay credit down. Its one of the many things i wish i could have a do over

[Help!]

Did the same, and it was all taken by the trustee. To make matters worse, we paid the 10% penalty *and* it was added to our 2008 income. Because it was such a large amount, it bumped us up into a tax bracket in which we couldn't take the deductions we used to - no childcare deduction, no child tax credit, no deduction for student loan interest, etc., etc. We ended up having to pay $10K. Luckily we had been living like misers since discharge and saving every dime or we'd right back in debt again... this time with the IRS. I suggest you set aside as much money as you can so it will be there if you have a large tax liability next year!

[Flamingo]

Did the same, and it was all taken by the trustee. To make matters worse, we paid the 10% penalty *and* it was added to our 2008 income. Because it was such a large amount, it bumped us up into a tax bracket in which we couldn't take the deductions we used to - no childcare deduction, no child tax credit, no deduction for student loan interest, etc., etc. We ended up having to pay $10K. Luckily we had been living like misers since discharge and saving every dime or we'd right back in debt again... this time with the IRS. I suggest you set aside as much money as you can so it will be there if you have a large tax liability next year!

Yep, it bumped up our income also for 2001 and we ended up owing about $2500 for federal which our attorney included in our filing in 4/02. You think you are doing the best/right thing by trying not to file and utilize your savings cause everyone says "don't file, don't file..." and back then the stigma of filing was much greater than it is right now at this point in time. When I look back after all that, 2001 was a horrible year juggling all that and trying not to file and just making things worse...

[spidge]

I did the same thing last year.
Didn't Obama say something about relieving us of those 10% penalties? Its probably part of the watered down BK bill.

[eddiep]

I also took a loan from 401k to keep up when hubby lost his job. Our attorney said it will count as income. This will put us close to median. Were you filing for 13 or 7? We are looking at ch7, why does it count as an asset for you but income for me?

[Help!]

We were a 7. It would have counted as income but we offered to liquidate it to repay creditors instead.

[eddiep]

Why did you offer to liquidate it to repay creditors?

[spidge]

I also took a loan from 401k to keep up when hubby lost his job. Our attorney said it will count as income. This will put us close to median. Were you filing for 13 or 7? We are looking at ch7, why does it count as an asset for you but income for me?

It is considered income on your taxes but unless it was recently taken out it should be off limits in the BK. Its not sustained income.

We were a 7. It would have counted as income but we offered to liquidate it to repay creditors instead.

Liquidate what? Your 401K? You don't have to.

[Help!]

Why did you offer to liquidate it to repay creditors?

Because our case would otherwise have been dismissed/converted to 13. The 401K was already cashed out.

[Help!]

It is considered income on your taxes but unless it was recently taken out it should be off limits in the BK. Its not sustained income.



Liquidate what? Your 401K? You don't have to.

The 401K was already cashed out and in the form of partially exempted assets. We agreed to remove the exemptions.

[Floridagail]

Lucky I was well below the med income by alot, so it did not do any damage, and I was 59 1/2 on Dec 17 so no tax penalty. But almost cost me money . It was asset so If I would of taken anymore out i would be over my 4000 florida exemption. Lucky all the way around. I had filed for ssdi July 2006, hoping for approval. It came thru on Feb 10,
when I got home from my 341, it was in mail. Miracle all the way around.