sell motorcycle & pay off 401k loan?

[debee]

I've been calling local lawyers this morning with a few questions. I spoke to three attorneys and they all agreed to answer a few questions which they did but they wouldn't answer this one:

Can I sell my motorcycle and pay back my 401k loan?

As soon as I asked it, they wanted to make an appointment. I don't understand why they clammed up on that one. Any ideas?

[ccsjoe]

You're asking them if you can sell a potential bk estate asset. They can not answer without knowing whether it will be exempted, whether you will get fair market value, whether you will sell to a friend or family, among other considerations. There's a lot of implications in that question. Can't fault them for not wanting to give a quick answer. The quick answer would entail an initial workup of your case, and that's just not part of a free consult.

[tcreegan]

Hi debee,

There is also an issue w/ how much you can put back into a 401K prior to a BK, I think there are some limits to this.

The question is more complicated than it looks....

Tom in Colo

[debee]

Any idea on the time frame? If the filing comes a year later, a year and a half? We still have some limp left in us and we hobble along for some more time yet ...

[ccsjoe]

Usually property transfers are asked about going back two years. The sale of the motorcycle consitutes a property transfer. Then, assuming you got fair market value and the sale was not considered an insider transfer, you have to document what the money went to and hope the trustee finds no objection. I honestly think you are better off doing a couple things first: 1. Do an initial workup of your filing (means test, schedule 6 series, etc.), and 2. interview a couple more attorneys to find the one unless you already found them, and retain them so they can work up your numbers properly. It might be that the 401K loan will not affect the bottom line in this filing, or it may. Numbers need to be crunched.

[keepmine]

I'll just say "me too".
You may well be able to exempt the cycle in your bk filing. If that's the case do so and post bk sell it and repay the 401K.
As others pointed out, it wasn't a routine question and the lawyers all sound like they were on the ball when they demanded more info.

[LaurieM]

I'm wondering if the court would consider the payment of a 401K loan as a preferential payment (paying yourself back versus paying a commercial creditor)? You might want to ask the attorney you consult with that question.

[debee]

When I was asking the attorneys, I prefaced the question with info - not exempt, open market, fmv, etc so they would know I was not thinking of transferring the bike to Uncle Bob for $1 & a six-pack. I wondered why they wouldn't just say, "don't do it" if it was universally wrong. I guess that was just too much question for the free call.

We don't want to file with assets or 401k loans. We'd rather sell the bike and distribute the proceeds equally among our creditor (sic). Someone elsewhere suggested we borrow money, pay back 401k loan, make timely payments, wait several months, sell bike, pay back creditor. Not that I would do that. Just saying.

We have other exempt assets that we can access without triggering a tax event (529 plans for kids with no contributions in last few years) and use that money to repay 401k loan. Exempt --> exempt. And doing it buys us more time before we'll have no choice but to file.

I don't think 401k loan repayment is considered preferential in the 9th circuit, but not a lawyer. In re:Egebjerg they determined that 401k loans were not "debts", but in that case they were excluding them from the means test. So don't know how that would play out in this sense.