Kinda dumb question..I think

[Allmixedup]

This may seem lke a dumb question......but I was wondering if taking money from your 401K is a considered extra income? I have not filed yet, as I am still paying lawyer. We are surrendering our home and need to save up the money to move and to pay the lawyer. This has been a tough process because I have been out of work due to a surgery and am only recieving half of my pay. Hubby works in the auto industry and is laid off for weeks at a time. June should be shaping up for us to make more money to get these things paid...but I was just curious about the 401k question. I don't even have alot of money in there, but I am having a hard time to come up with the money to get a rental.
I was also wondering if anyone else is in my situation? I know that I should have the extra money from not paying the mortgage, but we had the significant loss of income, so it's a wash at the moment......
Sorry to rant..just frustrated at the moment! (If only money trees really existed....lol)

[justbroke]

This may seem lke a dumb question......but I was wondering if taking money from your 401K is a considered extra income?

This is still unsettled and some Bankruptcy Districts consider it "income" while other Bankruptcy Districts consider it conversion of an exempt asset but otherwise still exempt.

It is never a good thing to take a hardship withdrawal from a 401(k) as you get taxed and get a 10% penalty on top of that (although Congress and the current President were going to do something about the 10% during these hard times. The prior President and Congress did allow withdrawals from 401(k) plans for disasters (Gulf Coast Economic Recovery) if you lived in Florida, Alabama, Mississippi or Louisiana during the Hurricane Crisis!).

If you need money from your 401(k) it's best to "borrow" it as a loan. The loans do not carry any penalties as far as taxation.

[Allmixedup]

Thanks for responding Justbroke...sorry I dod not clarify, but yes a loan is what I was thinking. I just wasn't sure if it was a good idea or not. You need so much money to move into a rental these days and we are having a hard time coming up with it. My mortgage is just about to turn 90 days late so I was thinking that it is time to start really getting serious about looking....

[justbroke]

You should check out what the foreclosure process is like in your State. Floridians are now enjoying -- if you can call it that -- about 200 days before having to move out. Use that time to save money (from not paying the mortgage). You are right though, be sure to plan and have your move-out plan ready. Start packing now. At least you can pack a few boxes a week and be ready to go. Use the 401(k) loan as a "emergency" plan.

[Allmixedup]

Well I am aware that people are staying in their homes for a long time rent free, but our lawyer said for us to get into the rental before we even get filed so that we can have that exact amount for our housing expense. Believe me I would rather wait until we have more money to be on our feet!! Even though they recommend us moving, do we "have" to? Would the trustee say anything if we are still in the home? I was under the impression that if you were surrendering the home that they would just use the irs standard housing expense. By the way I live in Michigan. I have tried to research this and I haven't been able to really find the answer.

[justbroke]

Well I am aware that people are staying in their homes for a long time rent free, but our lawyer said for us to get into the rental before we even get filed so that we can have that exact amount for our housing expense. Believe me I would rather wait until we have more money to be on our feet!! Even though they recommend us moving, do we "have" to? Would the trustee say anything if we are still in the home? I was under the impression that if you were surrendering the home that they would just use the irs standard housing expense. By the way I live in Michigan. I have tried to research this and I haven't been able to really find the answer.

Lawyers are all different. I think this is the first I've read where one said to move now so you can "have that exact amount for our housing expense".

You do not have to move. The Trustee can't really say anything. You actually "own" the property until it is foreclosed and the deed changes hands. That's just a fact. No one can compel you to move until they are the actual owner.

You can't just use the IRS Standard in a chapter 7. You always use your actual expenses and if you exceed the IRS Standard, then you will be challenged. You must be filing in one of those Districts that believes you can't use your current mortgage expense on Schedule J if you are surrendering. Most courts disagree with that logic, but... it is what it is.

Is your lawyer telling you that you can't use your current mortgage expense amount on Schedule J because you're surrendering the property? That says alot. (Not saying at all that your lawyer is not good, just that it is probably a local rule/local District thing.)

I personally don't see moving out of a property that I own because someone else tells me I have to. You should ask your lawyer those questions. Ask him if you "must" move out. Ask him about the property still being yours and that you'd like to stay as long as possible.

[Allmixedup]

Yes, we were told that we could not use the mort. payment as an expense since we are surrendering. I think I will call the lawyers office Tues. and ask alot more questions....considering they have some of our money already!

[jeb]

Yes, we were told that we could not use the mort. payment as an expense since we are surrendering. I think I will call the lawyers office Tues. and ask alot more questions....considering they have some of our money already!

All, keep in mind that there are tons of ripoffs going on in this country right now in "helping" people stop foreclosures, re-negotiate their loans and Ccards and BK's. If a buck can be made, someone will find a way to cheat someone out of it.

Not saying that you Attorney isn't really spooled up on BK but a lot of them that have not been doing BK's have just started to cash in and may have little real experience.

As others here have indicated, the advice sounds strange. I would suggest you not only call your Attorney but several others - most all will not charge for the first visit. If you fine that you are not getting the same info from the others that your present Attorney is giving you I would ask for your money back - and take it all the way to the State Bar if you have to.

The best of luck to you - things do get better. - jb

[queenfluff]

Yes, 401K withdrawals are considered income. That was all the money I had in my life - no money made from job etc. Lawyer said it is income.

[Help!]

Yes, 401K withdrawals are considered income. That was all the money I had in my life - no money made from job etc. Lawyer said it is income.

I second this. It was counted as income in our case by the UST even though our attorney said it would not be.