Chapter 7 & 403(b) loan

[arteemus37]

My husband & I have consulted w/ an attorney in Missouri. We are eligible for Chapter 7, our home was taken by foreclosure a couple of years ago, and we have few assets, we will lose nothing by filing. I was forced to quit working in 2008 due to several health issues, and am currently awaiting a disability hearing. I used to work for a university & had a small 403(b) plan in addition to a retirement pension. My current question/problem is concerning a loan from this plan: My daughter began attending a vet tech institute in early March. She was unable to get a loan to cover her whole tuition, and we were unable to get loans either. I decided to roll over my pension plan into my 403(b), from which I could take a loan without incurring a 20% penalty by cashing out the pension plan. However, this process was going to take about 30 days to complete, and my daughter was due to start school within 6 days. If she missed her start, the school could not guarantee that she would be accepted into the program again. At the last moment, my sister's employer wrote a check to the college for $8000 to cover the tuition gap, with the understanding that I would pay this loan back within 30-45 days using a loan from my 403(b). Within a few days of these events, we returned what I thought were the final bankruptcy papers needed, plus full payment to the attorney, with the expectation that the bankruptcy would be filed soon after. After 3 weeks of no info from the attorney, I contacted him & found out that we still needed to sign the petition papers (!?!). We received them Friday, have signed them, but in the meantime the loan of $9000 ($8000 for tuition + $1000 for her living expenses) I requested from my 403(b) was processed & deposited into my checking account. Now, I don't know what to do, I'm freaking out & will be unable to consult w/ the attorney until Monday at the earliest. Is it ok to write a check to the company, or is this money considered income? If I leave it in my checking account when we file the bankruptcy, will it be confiscated? Help!

[newbie2]

I don't know if it will be considered income, but I do know if it is sitting in your account you need to be able to exempt it or be prepared to lose it. Don't do anything with it right now until you have talked to your attorney. (If you make the payment now and get rid of it, it may be clawed back by the bankruptcy trustee.) Hang in there until tomorrow, and most certainly talk to your attorney.

[arteemus37]

Well, I finally got to speak with my attorney on Tuesday...he told me that I need to pay the $8000 to the college, and then have the college send a check to reimburse the company who originally wrote the check. This will show that the money was used for educational expenses. I spoke with the college (feeling like a total doofus) and they seemed puzzled by the request, but seemed to be amendable. However, they said they needed to refund money to the student, rather than the company, but if it was necessary that they would try to work around it. Sooooo, I spoke with my attorney the next day & he said it was ok for the money to be reimbursed to my daughter, just as long as it wasn't reimbursed to me. Now I'm waiting for the college to call me back & let me know who to send it to, I don't want my check floating around their offices for weeks because they don't know what to do with it. As soon as this is taken care of, we can go ahead & file the chap7 petition.