I am in the process of filing chapter7 (just filling out paperwork) i have not asked my lawyer yet about my 401K loans. will they be included in my chapter 7 or will I still be paying the loans back?
SinD
SinD
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401k loans cannot be discharged in bankruptcy. 401k loans can complicate a ch.7 because they aren't allowed as an expense on your schedule J. If your budget is far enough in the negative without them, then it won't matter, but if you show a positive DMI without them listed, it can cause problems....You need to speak to your attorney about those 401k loan ASAP.Filed Chapter 13 on 2-28-10. 341 completed 4/14/10. Confirmed 5/14/10. Lien strip granted 2/2/11
0% payback to unsecured creditors, 56 payments down, 4 to go.... -
That does not make any sense. My 401K loans decreased my DMI in my Chapter 13 - what is different about Chapter 7? Most 401K loans are repaid through wage deduction, so you never get to direct the money into other channels even if you wanted to. The only way to dissolve a 401K loan is to have it declared as a distribution. Then, you pay the taxes and any withdrawal penalties on that distribution.
Why would you want to discharge a 401K loan in the first place? You are borrowing your own money and paying yourself back with interest. (!)Comment
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401(k) loans are non-dischargeable, period. They are not really loans in the normal sense in the first place.
If you don't pay the loan back, the loan is deemed an early withdrawal subject to income tax and penalty.
momofthree is correct, 401(k) loans present a "minor" hurdle in chapter 7 because of how they are treated in the means test. You cannot deduct the payments in chapter 7 means test (but still list them on Schedule I & J), but you CAN deduct the loan payments on the chapter 13 means test. The net result, if the only thing causing you to fail chapter 7 means test is your 401(k) loan payments, but if you did a chapter 13 means test, you would have zero DMI, you stay a chapter 7.Comment
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