Took out a 401 loan in Jan of 2006- Potential Problem?

[Winger19]

I took out a loan from my 401k last Jan 2006. The amount was $5000.

I used over half of it to pay off older 401 loans that had very high monthly payments. The only reason for this was to have a lower 401 loan payment. That accounts for $2700 of the loan.

$1000 of the money went to paying off a Dell computer that was in my wifes name. We also used about $600 to pay down some of her smaller balance cards and my one small balance card.

The remaining $600 was taken with us on a vacation that was given to us by my Parents as a christmas gift.

Do you think this is going to cause problems for me with the trustee? I am filing separately. At the time the loan was taken out I had no idea I would be filing for BK.

It's a recent Judgment that brings me to file for BK.
Thanks for your help!

[anonymuse]

Did any of this occur in the last 90 days, or was it all done in January?

[LostOne0069]

I can't see why it would be a problem considering you're under no obligation to actually pay that money back.... it's YOUR money that you "borrowed". If you stop paying it, you default on the loan and pay taxes and penalties on the "income". It's not reported to a credit reporting agency and there is no "credit application".

[Winger19]

It was all done about 4 to 5 months ago so nothing within the last 90 days.

Jeez...there is so much to think about a far as who was paid what.

Our parents always give us money for our anniversary as they know money is tight. We got $400 last month for our ann. and put it on my wifes credit card. I hope that's not going to be a problem....

It sounds like I'll be alright on the 401 loan.
Thank you!

[DisneyGirl]

Your 401K loan should be fine. We took out one before and one right after (to pay off loan #1 and some car repairs). No one said anything. Good luck to you!

[Winger19]

Thank you for the help DisneyGirl! Our vacation was actually to Disney World It's the only time I've been able to relax and let go in the last year

[aa06a47]

[QUOTE=Winger19]It was all done about 4 to 5 months ago so nothing within the last 90 days.

Jeez...there is so much to think about a far as who was paid what.

Our parents always give us money for our anniversary as they know money is tight. We got $400 last month for our ann. and put it on my wifes credit card. I hope that's not going to be a problem....

It sounds like I'll be alright on the 401 loan.
Thank you![/QUOTE

You'll be OK on the 401k loan. You get to deduct the payments during the chapter 13. (it might have been better financially to have kept the higher 401k loan payments though, as the money saved will now go to the trustee).

If your 100% sure BK is what your going to do, then you should try and make sure that you don't pay any one creditor 600 or more in the 90 day period prior to filing. I know you mentioned paying dell off in Jan...that is OK, outside of 90 day window. I found out the hard way the trustee can hold up your confirmation hearing if he chooses to go after the "preferential" treatment given to creditors.

[Winger19]

I'm hoping to file for chapter 7 at this point. I'm holding my breath as I have a meeting with my Atty on the 16th of June.

It's looking like the only way I'm going to be able to pay for this BK is with another 401 loan and I may have to take out a bit extra just to be able to make my house payments right now so I will most likely be at the same payment I was before.

Jeez this garnishment is killing me

[anonymuse]

I don't think taking money out of the 401K is really any concern to anyone. All the trustee will be watching for is preferential payments, not where that money came from.

[aa06a47]

I'm hoping to file for chapter 7 at this point. I'm holding my breath as I have a meeting with my Atty on the 16th of June.

It's looking like the only way I'm going to be able to pay for this BK is with another 401 loan and I may have to take out a bit extra just to be able to make my house payments right now so I will most likely be at the same payment I was before.

Jeez this garnishment is killing me

If your going to file Chapter 7 Bankruptcy, reconsider the 401k loan if you can. You can stop paying your credit cards and save for the attorney (keep you house payment utilities and car current). You said you often get gifts of cash from your parents. Perhaps they will help with the lawyer fees. (Laywers don't care who pays them, as long as they get paid). Tell them you won't expect any anniversay cash for the next 5 years.

If you can handle the garnishments and save enough (or borrow from your parents) to file soon enough, I think you would be better off in the long run without the 401k loan. Unsecured debt doesn't have to be paid back, 401K loans do.

On a personal note, I have to be honest in that I didn't follow my own advice above. I have 3 loans from my 401k's going right now because I always thought it would solve my problems. It didn't. In fact, it made them worse. It is my experience that if at all possible, leave the 401k money in the 401k. It is protected money that no creditor can get.

[scammer]

Geez, am I stupid or what????

I don't like to give advice, for fear of it not being gospel. I just read this as I was walking out the door of the bforum.

1 taking money out of a 401k, it is protected $$$ my friend???

2 Filing seperately, and you paid a bill of your wifes???
Is that a pref transfer to a family member? Reminds
me of the thread "wenderful" started that I was having
such a good time on, till she realized how screwed she
was with my help and deleted whole thread. No your not in that bad of
shape

3. how can you have two 401k loans, impossible, I am in the business.
you either have two seperate employers, or one of those 401k loans is your wifes. Most employers force you to pay back 401k loans on demand, upon termination. Mine did, I think I had 90 days. They have no way to accept the payment from payroll without you working there.

4. If your not a saint, then why don't you at least leave the part out were
the $600 went to pay off wifes credit card, just say you spent it on trip.
In fact, why don't you just forget that you paid off wifes computer with
dollars.

5. borrowing the money isn't the problem, what you do with it is!!!!

6. I am an old law guy, gotta think the laws are even tougher, some expert on here should know fraudulant transfer rules.

7. Once those dollars are dispersed out of the 401k, and then paying them right back in on the loan, is fair game for the MAN, I think your gonna get a SPANKING!!!! saw this before on another thread, there are some sharp people on here, hope they pipe in.

8. Are you chapter seven, that is where you posted this, someone above mentioned 13?

boy i gotta get out of here and get some sleep, before I mispell any more words, wait till sinkingfast sees some of this, she likes all the rules on this and that.

[scammer]

Your 401K loan should be fine. We took out one before and one right after (to pay off loan #1 and some car repairs). No one said anything. Good luck to you!

The taking out part is fine, how you spend it is the rub. Isn't there a question that says something like "in the last 12 did you give money to a family member" He gave $1,600 to his wife, she isn't filing!, Trustee would like those funds for the sweet creditors

[aa06a47]

The taking out part is fine, how you spend it is the rub. Isn't there a question that says something like "in the last 12 did you give money to a family member" He gave $1,600 to his wife, she isn't filing!, Trustee would like those funds for the sweet creditors

You have raised some good points here, however, I don't think money spent in a husband / wife deal is money to insiders, especially if it went to pay unsecured or secured creditors. You might be right, but I wouldn't even bring up the 401k loans unless your filing chapter 13 and need to deduct the loan amount.

[LostOne0069]

Geez, am I stupid or what????
3. how can you have two 401k loans, impossible, I am in the business.
you either have two seperate employers, or one of those 401k loans is your wifes.

Sorry, but this time your info is inaccurate.

I also have two 401k loans. I'm not allowed to take any MORE 401k loans until I pay off one of the others, but I do have two on the same 401k. One taken out about 2.5 years ago and the other about a year ago.

As for the worry about what they spent it on? Yeah, you're probably right there. $1600 payed to ANYONE, especially a family member, would probably be considered a preferential payment, and the trustee won't care where the money came from.

[Winger19]

Geez, am I stupid or what????





3. how can you have two 401k loans, impossible, I am in the business.
you either have two seperate employers, or one of those 401k loans is your wifes. Most employers force you to pay back 401k loans on demand, upon termination. Mine did, I think I had 90 days. They have no way to accept the payment from payroll without you working there.

4. If your not a saint, then why don't you at least leave the part out were
the $600 went to pay off wifes credit card, just say you spent it on trip.
In fact, why don't you just forget that you paid off wifes computer with
dollars.


7. Once those dollars are dispersed out of the 401k, and then paying them right back in on the loan, is fair game for the MAN, I think your gonna get a SPANKING!!!! saw this before on another thread, there are some sharp people on here, hope they pipe in.

8. Are you chapter seven, that is where you posted this, someone above mentioned 13?

I'm a state employee. We can have up to 7 401k loans maximum. Years ago I had 5. We can only borrow up to a certain percentage of the balance. They come directly out of my paycheck. They do demand payment upon termination or you will receive a bill for the taxes and penalties.

I'm not a saint but if I tell the trustee that all that money went to a trip.....I'm going to be screwed when he looks at the bank statements and sees the checks in those amounts sent to dell and other bills. I thought it was all about not lying to the trustee? I'd rather take my lumps on paying those bills than take my lumps on lying to the trustee and getting my BK thrown out.

My Atty says I can go with the Ch7. He also said the 401 loans will not be a problem.

I realize that the 401 is protected money but I've always used it as a cushion for when things go wrong. I'm not counting on it for retirement as I will have a state pension and a 457 deferred comp plan that I will use for retirement. Both are ERISA protected and will pay me nearly 90% of my wages when I retire....waaayyy down the road.