401k distribution, need help!

[Swim]

Hi everyone,
My wife and I are retired, and we were looking to file around this time. However, we just learned that insider payments are not allowed and I have been helping my brother out in the last couple of months when we had the income. So now we are taking out a $1000/mo from the 401k savings to live on , barely live on for now and pay creditors for now. grrr. Now my question is, can I change that $1000/mo to a smaller amount to lets say $600/mo and then file bk? This is actually the original amount we wanted to take out so the account doesn't depreciate as quickly. Since a 401k is fully exempted, I don't see a problem but I'm not sure if this a process we are allowed to do.

[despritfreya]

Your question is a bit confusing.

The $$ sitting in the 401K is protected. Once it is removed from the account it is nothing more than money sitting in the bank or on your dresser. The monthly amount is not of concern but for staying at or below median income for your family size. The transfers (gifts) to your brother that were given within 1 year of filing must be disclosed and the Trustee has the right to recover them. How much are we talking about? You can always step in and pay the trustee the amount transferred so that the Trustee leaves your brother out of it.

By the way, while you have to disclosed the gifts within 1 year, your Trustee has the right to look back at least 2 years, maybe even more depending upon your State's fraudulent conveyance statute.

[Swim]

Your question is a bit confusing.

The $$ sitting in the 401K is protected. Once it is removed from the account it is nothing more than money sitting in the bank or on your dresser. The monthly amount is not of concern but for staying at or below median income for your family size. The transfers (gifts) to your brother that were given within 1 year of filing must be disclosed and the Trustee has the right to recover them. How much are we talking about? You can always step in and pay the trustee the amount transferred so that the Trustee leaves your brother out of it.

By the way, while you have to disclosed the gifts within 1 year, your Trustee has the right to look back at least 2 years, maybe even more depending upon your State's fraudulent conveyance statute.

We have not yet filed yet and the plan is to wait a year to file. It was a few hundred dollars a month. During this next year, we wont be making any insider payments. But to stay current on the credit cards and living expenses, we are taking $1000/mo from our 401k savings acc. So after waiting a year, if we were to do the income minus the expenses, we would have disposable income. But if we decrease the 401k distribution to $500/mo or so, we would not have any disposable income and be eligible for a chap 7. Will teh trustee question the fact that we lowered teh distribution?

[tobee43]

swim, i would wait as long as possible and try to put as much distance in "time" before filing.

that way maybe you can clean this mess up with your brother and be able to answer "NO" to the question. but you really need to keep honest and make certain. i would talk to your attorney about this situation.

we knew someone that because of certain situations had to wait 2 years to file. we also, waited over a year and 1/2...just to be able to answer "NO" so certain questions...legally.

we personally, did not want to proceed with anything hiding in our closet that could come back to bite us. the best way is to make certain you are clear of any questionable situations.

[despritfreya]

I do not think anyone would question the reduction in the amount you pull from the 401K so that 1) you are below median income and/or 2) have negative cash flow when looking means testing if above median income and/or Schedule I and J.

I will assum that you do have other sources of income since you have indicated that the amount you pull from the 401K is discretionary. The less you need to pull the better off you will be.

[tobee43]

I will assum that you do have other sources of income since you have indicated that the amount you pull from the 401K is discretionary. The less you need to pull the better off you will be

exactly, i agree. i would just take out enough to cover the min. expenses to help comply with the means test.

[Swim]

Exactly, thats the purpose is to save the 401k acc value as much as I can. The reason why I need to take 1000/mo is to just cover my expenses and pay off credit cards since my other income is not enough. So after a year and couple of months when the insider payments are cleared, then I would just only take out $500, stop paying teh credit cars, have enough to live on for just living expenses, and file for bk. Hopefully the trustee does not object.

[momofthree]

I'd definitely lower the amount you're taking from the 401k and discontinue making the credit card payments now.

[tobee43]

the 401 is only part of it. so you have to consider your home, (fi you have one), car, etc...if you are keeping and what your going to look like on paper when everything is all said and done.

[keepmine]

Good heavens! Stop taking money that is exempt to pay credit card debts that will be discharged.

[Swim]

I agree but we are afraid that if we stopped paying now for a whole year or so, creditors can file lawsuits or place a lien on the house. It's a mess I know but we're trying to make the best of it.

[backtoschool]

The money in your 401k account is only exempt while it sits in your 401k account. When you take a disbursement, that disbursement is a cash asset that has to be exempted as a cash asset and/or counted as income.

Lowering the disbursement amount is a good idea.

Please note that any payments to your brother in the last year will probably be recovered by the trustee. The trustee will go after your brother for the money. I was made an asset case due to two $500 checks I wrote my mother to help her out in the last year. The trustee went after my mother for the money. I paid the trustee myself of course, I didn't want my mother to have to pay.

If you are planning on waiting a year from the last payment to your brother to file, you should be fine.

[Swim]

The money in your 401k account is only exempt while it sits in your 401k account. When you take a disbursement, that disbursement is a cash asset that has to be exempted as a cash asset and/or counted as income.

Lowering the disbursement amount is a good idea.

Please note that any payments to your brother in the last year will probably be recovered by the trustee. The trustee will go after you brother for the money.
I was made an asset case due to two $500 checks I wrote my mother to help her out in the last year. The trustee went after my mother for the money. I paid the trustee myself of course, I didn't want my mother to have to pay.

If you are planning on waiting a year from the last payment to your brother to file, you should be fine.

Thanks for the insight backtoschool. Do you think the trustee would object if I lowered it a few months before filing?

[backtoschool]

Thanks for the insight backtoschool. Do you think the trustee would object if I lowered it a few months before filing?

No, the trustee won't object and has no grounds for objecting even if he/she wants to object.

[tcreegan]

stop cc payments

Hello Swim,

If you are going to file BK, stop the cc payments immediately, stop throwing good money after bad. Whatever the cc companies do can be undone in the BK and stalling them for time is not hard to do. Check around the forum, most people quit paying for months to years before filing BK.

Keep as much 401K money as you can !!

Tom in Colo