Chap13

[Celina3638]

Just filed for chapter13 in California. Can you borrow from your 401k without asking permission from your trustee? Advice please...

[shipo]

My understanding is, yes, you can borrow from a 401K. That said, while borrowing is okay here in New Hampshire, it may not be okay in California.

[sophieanne]

Are you in a 100 percent payback plan? If so you could make the decision on whether you can afford to make the loan payments. If you’re paying back less then 100%, the trustee can view the loan proceeds as extra money that can be taken and given to the creditors. The creditors wouldn’t be happy that you can pay yourself but not them. When in doubt ask your attorney.

[flashoflight]

You really need to ask your attorney and don't be embarrassed about asking your lawyer about this. With this question, it may have been much better to borrow it prior to filing but it's too late now.

It may be much better to simply withdraw the funds straight up if you have access to the CARES Act withdrawal option, which is the only easy in-service withdrawal option that's ever existed for 401ks. Then there is no borrowing issue which will jeopardize your 13 even if it is approved by the trustee. Next, attorney/trustee needs to consider whether the proceeds are treated as extra non-exempt funds for creditors if you are not in a 100% plan. And you have to plan for paying the taxes. Remember paying the taxes on-time is one of the requirements in a 13.

In the central district of California, you can't borrow from the 401k without trustee/court permission if the amount is greater than $1k unless it's an emergency.

TLDR - You must ask your attorney.