Question

[over22]

borrowed money from my retirement from employer was ruled non priority debt i have been discharged & closed for almost a year still employed there and paying it back thru payroll deduction if i leave company do they stiil owe me the entire balance since it was discharged or just what is left after what i owe my lawyer said they would owe entire account since it was discharged [ret account was an esop program ] as non priority

[LuciluS]

In Chapter 7 Bankruptcy, your retirement account is exempt from the Bankruptcy Estate. After discharge of Chapter 7 Bankruptcy, you have control over your retirement account. Trustee is out of the picture.

If you leave your present job & have not paid your retirement loan in full, the person who is in charge of retirement accounts for the company, will deduct the balance of your loan from your Account. You will receive a 1099 on the balance of the loan & will pay taxes according to your tax rate for that year.

Also, if you do not rollover the retirement account (think you might have a 401K plan with your current employer) into an IRA within 90 days, (not quite sure of the days), utilize the account money for other expenses, you are not disabled, or haven't reached retirement age (this age varies from 55 - 67, depending on how your company's Retirement rules state), or put funds into your new job's company 401k ,you will have to pay taxes on that amount also.

Hope you understand what I've written? LOL

Luci

[over22]

company loaned me the money using esop as collteral .Before discharge lawyer was told by trustee to change as unsecured non priority debt to include in chap 7 .esop is stock ownership of company not planning on leaving but you never know

[over22]

employee stock

ok quick update i owe about 30 k from esop plan with the way the ecnomy has dropped my plan is worth 18k. company has been taken money every week out of payroll this was included in bk chap 7 discharged they said if you dont pay it back no job so i need my job so i said whatever this has been discharged for 3 years this debt was discharged but company still takes out of pay so with interest dropping i had to sugn a paper with a lower interest rate i spoke with my attorney first off if i leave company they will owe me what is in plan 18k the 30k i owe was discharged 3 years ago so that is a moot point . said that the company i work for has illegally taken this money for this time that i do not owe it and major issue on paperwork to lower interest i signed that they are collecting on adischarged debt & discrimatating againstme by threatening to fire me if i do not pay it back what to do i really need my job been there a long time

[despritfreya]

ok quick update i owe about 30 k from esop plan. . .i spoke with my attorney first off if i leave company they will owe me what is in plan 18k the 30k i owe was discharged 3 years ago so that is a moot point . said that the company i work for has illegally taken this money for this time. . .they are collecting on adischarged debt & discrimatating againstme by threatening to fire me if i do not pay it back what to do i really need my job been there a long time

If your attorney is correct (but see below), you should consider hiring your attny to reopen your bk and file for an Order To Show Cause. If your attny is correct you may have a major damage claim against the employer regardless of your employment status but, this is a tough call for, as you say, you need your job. But, read on:

The loan you took from the ERISA qualified retirement Plan was not a priority claim as stated by your Trustee. If anything, it was a general unsecured claim. However, since qualified retirement plans are not property of the estate a bk should have no effect on any loan against them. While I have not specifically researched this issue, I base this upon the fact that Chapter 13 Trustees, many years ago, tried to require debtors to cease repayment of said loans and thus increase their Plan payments by that amount. That practice stopped relatively quickly as such a requirement created large tax burdens for the debtors which caused problems in the ability to do the Chapter 13 Plan - how do you make Plan payments when you now have a tax bill because you have to pay income tax on the $$ you took out from the 401k? (remember, not paying the loan is not "forgiveness of debt" - it is receiving wages that were withheld for the purpose of a tax deferred retirement plan. Not only do you have to pay income tax on the wages, you also have to pay the penalty for early withdrawal).

My belief is that since you needed to comply with Federal ERISA laws as it relates to repayment, your employer was correct in not stopping the repayment. But, I could be wrong.

Des.

[Peeps]

It's hard to get a feel for this without seeing the original agreement, so maybe I'm viewing the issue in terms that are too simple. Didn't you essentially borrow money from yourself? Can you loan yourself money, spend the money, not take a loss when the debtor (you) files Ch 7 to discharge the debt with the creditor (you), and then expect your employer be accountable for the debt? I dunno, maybe you can depending on the type of agreement that was originally in place. It does seem like a stretch, though. Best of luck with it.

[tcreegan]

Hi over22,

The law is very clear, your employer cannot legally fire you:

US code title 11 chapter 5 § 525. Protection against discriminatory treatment
(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

Likewise they cannot legally collect on a debt discharged in a Ch 7

Since you need to stay in your job, talk to your lawyer about getting some sort of injunction to prevent them from firing you while the case proceeds.

Another avenue to explore is a case under the Employment Equal Opportunity Commission...they would handle the discrimination b/c of the BK, not sure this is their normal cup of tea but in theory are supposed to help you. see: http://www.eeoc.gov/

Hope you can get this sorted out and keep your job, good luck to you!

Tom in Colo

[despritfreya]

OP shows he’s in Michigan. If that is correct (and even if it is not) and if the loan was from an ERISA qualified retirement plan, the money taken by the employer does not violate the discharge. Initially I thought the reason such repayments were allowed was the tax consequences and the fact that the retirement is not property of the estate. Wrong. The vast majority consider the repayment not to be the repayment of a debt but rather a recoupment of the debtor’s own funds:

McVay v. Otero, 371 B.R. 190 (W.D. Tex., 2007) cites to the 1999 case out of the Eastern District of Michigan (as do all other cases I found) and held:

“Among the courts that have considered the issue, "[t]here is a clear consensus that an individual's prepetition borrowing from his retirement account does not give rise to a secured or unsecured `claim,' or a `debt' under the Bankruptcy Code." In re Esquivel, 239 B.R. 146, 157 (Bankr. E.D. Mich. 1999). When a debtor is effectively borrowing money from his own retirement account or insurance policy, other courts have reached the same conclusion regarding the status of subsequent repayments, based on the same reasoning that the ability to offset the unpaid balance on a loan by deducting from the debtor's future benefits is not a "right to payment" and creates no debtor-creditor relationship.”

See also: Taub v. Weber, 366 F.3d 966 (9th Cir., 2004) (which had to do with the unauthorized practice of law but makes a nice reference to the Michigan case):

“Determining whether a loan taken by a debtor from a 401(k) plan or other retirement account constitutes a "claim" under the code is surely an exercise of legal judgment. Indeed, some courts have held that similar loans do not constitute claims. For example, in In re Esquivel the court examined a personal loan from a 401(k) plan and noted that "courts that have considered the status of pension-account loans have overwhelmingly held that, in most cases, they do not give rise to secured or unsecured `claims' or `debts' under the Bankruptcy Code." See also In re Villarie, 648 F.2d 810,811 (2nd Cir. 1981)”

_______________________________________

So, from the above, and assuming this loan was from a qualified retirement plan and not a loan from the employer, OP has no claim against his employer for continuing the deduction.

Des.

[over22]

the company stock is not worth what i owe on if i left company i owe 30k plan is worth 18k so they have told me i would still owe the 12k differance the loan was secured by the stock program stocks pricing went down i have my discgharge papers eliminating this debt. i had to re sign to lower the interest rate i pay back company charges interest on your own money my attorney said the whole issue is moot because it was discharged as a non priority debt if i wanted i can tell them to stop taking money out of payroll and they could not legally fire me i 'm just trying to see where i stand as long as i work there i will pay it back i have no choice really

[despritfreya]

the company stock is not worth what i owe on if i left company i owe 30k plan is worth 18k so they have told me i would still owe the 12k differance the loan was secured by the stock program

So, what you are saying is that your employer loaned you money and you pledged your stock. Then this was not a loan from your retirement plan. Is that correct? If so, then I would agree the debt was discharged, the employer gets to keep the collateral (the now devalued stock) and your boss is violating your bk rights. Just like folks who surrender vehicles to the lien holder through the bk, you should have surrendered the stock to your employer.


But if this was stock held by the company retirement plan and you took a loan from the retirement plan itself (not your boss), then you owe the $$ and the fact that the Plan is worth less than when you borrowed the money (most of us are in this situation) is irrelevant.

Des.

[over22]

des that is correct