Okay to take 401K loan after 341 hearing?

[Vanda]

Hi, still would like more feedback about this question. I need to get current on my mortgage and would like to take out a relatively small loan on my 401K. Since I filed Chapter 7 in January, wouldn't this be okay? I will ask my attorney but no longer trust his judgment. Thanks for your help, all!

[spidge]

Instead of taking a loan send the 401k administrator the notice of default or notice of intent to foreclose and make it a hardship withdrawal. If they allow this you wont have to make payments but you will be taxed and penalized. Take it from experience, you don't want a loan payment that you cannot default on without leaving the company. If the administrator gives youa hard time explain why a loan would be dificult as you are filling BK.

[Vanda]

I don't know if a hardship withdrawal is an option. I was just thinking of a $5000 loan so I can get current while my Chapter 7 drags out. That would not be a terrible debt to pay back. I need to do this by May 14 or else they will start the foreclosure. What I really want to know is CAN I do this, is it allowed while you are under a Chapter 7?

[Flamingo]

You had better ask your attorney who represents you. Plus he/she will be aware of what you are doing and when. When represented by an attorney during BK, do not do any steps on your own without first consulting with your attorney. Remember, if you leave this employer or are laid off prior to your loan being paid off if you can take it out now, you will have to deal with taxes and penalties that that specific tax year unless you can pay off the loan in full at that time.

[Vanda]

401K Loan

Thanks, Flamingo, I realize a 401K loan is risky. Will ask my attorney today about it, but I am in a situation. I know also that if I got fired or laid off I would have to take an actual distribution to pay the loan back, but of course that would be such a total disaster anyway that this would be the least of it. It would be really hard for someone my age to find another job anywhere near as good, crossing my fingers that my company survives the economy and my heart goes out to all those who have lost their jobs.

[Vanda]

Met with Lawyer

I feel much better, he says that the time for them to object to exemptions has passed and thus the danger of being pushed into a Chap. 13 is pretty much over. Does this make sense? He says at this point they just need to tell me how much in the way of assets they want me to pay back, and will probably allow me a couple of months to make payments. Says they have much bigger fish to fry than me, and the extension til 7/31 was ordered by the judge, to give creditors time to file claim so they can each get their $300 or whatever. Again, does this make sense? He said I can borrow from 401K if necessary but does not advise it for the reasons discussed here on the board.