401k Loan to payoff BK?

[Monty2000]

Been doing too much thinking lately. My financial situation has cleared up to the point where I can make our payments - looking at 40 months to go on a ch 13.

If I can pull about 35% of my 401k out in a loan, I could clear the BK- I would continue to make contributions to the 401k plus the loan payback. I know I would lose some retirement money overall, but I dont think it would be that much.

On the other hand, I could apply the same money to my 2nd mortgage where I am paying a good 8% interest, and it will take a long time to go away. I owe about the same amount to the 2nd as I do the BK.

I am a little confused at how much interest I pay to the trustee. I didnt really think it was anything, but I saw recently that all trustees are charging something. I need to find that out.

Any good advice?

[Frodo]

I have heard from a few financial advisors that you really don't want to borrow against your 401K unless its an absolute emergency.

[HHM]

Probably not a good idea.

How much are you paying back to your unsecured creditors in your chapter 13 payment plan?

[Monty2000]

I'm in a 100% payback.
I kno in general that 401k loans are not a great idea, but certain circumstances warrant it.
I'm thinking this might be one of them.

[HHM]

Well, what circumstances are those?

[LostOne0069]

Only question I would have for you on this is... how old are you?

If you're fairly young and you have a lot of years ahead of you to add to that 401k... then yes, I'd do it.

Getting out of chapter 13 40 months ahead of time and getting your credit and finances back in shape that much faster would be worth it to me.... but then I'm only 37 and have 25-35 more years of work ahead of me to contribute to that 401k.

Just do yourself a favor and don't get in ANY other debt until that 401k loan is paid off. Make the new contributions as employer matching makes it really stupid not to if you can afford it.. but other than that, put every penny away in savings or make extra payments to the 401k loan and pay it off early.

Good luck!

[Monty2000]

The circumstances are simply being in a BK. The idea of getting out of it, sounds pretty good.

[HHM]

The circumstances are simply being in a BK. The idea of getting out of it, sounds pretty good.

I would say that is not a good enough reason. If there was some financial need for the 401K loan, then perhaps, but if the ONLY reason is to end your BK, than no, you are better off finishing the BK.

[CATCHMEIFYOUCAN]

Just my 2 cents, if you are paying back in your Ch13 .. you are not paying any interest. If you borrow from you 401k - YES you will be paying yourself back, with interest. However, if later on down the line you lose you job for whatever reason than you will default on your 401k loan if you do not have enough to cover any amount due, on top having to pay a fat tax penalty for the defaulted balance. TRUST ME, I defaulted about $8000 since I had to quit one job! TAXES will kill me more so THIS year than other years in penalties alone! SAVE your 401k if you can!

Best Wishes, Catchmeifyoucan

[9877donna]

I would say that is not a good enough reason. If there was some financial need for the 401K loan, then perhaps, but if the ONLY reason is to end your BK, than no, you are better off finishing the BK.

I totally agree.You would be much better off in the long run if you just pay your BK to the end.Don't pull all that money out of your 401k to pay it.It's just not worth it.All the fees and early withdrawal penalties are too high a price to pay.
Good Luck to you whatever you decide.
Donna