Need HELP... think I may be screwed

[jzak423]

I was planning on filing chapter 7 a few months back, so I stopped using my cards and got ready to bite the bullet. Then in a last ditch effort I decided against it. I got a decent paying job and my girlfriend did as well. She was against filing so we decided to buy a house and suck it up for about a year and then try to bury some of my debt into the mortgage. I withdrew about 11k from my 401k for a first time home purchase and everything was going well. Then 2 weeks ago after putting an offer in on a house (thank God we were out bid), I get laid off. I barely quallified for the home loan the way it was and now I'm out of a job.

I'm considering filing chapter 7 before the dealine, but I have $10k sitting in my savings account. Can I quickly re-invest that money and show proof of where it came from and still not loose out on that money? Or am I screwed? By the way I'm $52,000 in debt so that $10,000 will not make a difference.

[StaciMM]

Check your state exemptions. Alot of states allow you to use the homestead exemption-or part of it at least-as a Wild Card exemption if you don't need it for real property. (I filed joint w/ husband, could have had $10k cash in my pocket and exempted it. Not that I had $10k cash!)

[Lightning]

If you don't own property, you're going to have a hard time exempting $10,000 in cash.

[hhou812hh]

Unless you have any job prospects you may want to use some of the money plus unemployment to live on and file under the new law. If you go that route save some of this money for a lawyer since they will be more expensive then the current bk atty. You should qualify under new law but it will be more work.

[ODDBALL]

If you withdrew the money from your 401k, will you not have to repay it back? I was watching Suze Orman and there was a situation where money was 'borrowed' from a 401k, and the individual was laid off. I cannot remember the exact situation, but it involved one of them borrowing from the 401k, then getting laid off, then having to repay the money back. Their end result was bankruptcy. If I'm incorrect, don't 'blast' me. Just providing my insight of what I recall hearing. Good luck!!!

[StaciMM]

I believe making payments to a 401k loan are considered preferential payment... The best bet may be to use it for needed things-are utilities, etc. up to date? If not, catching them up may be better than including them in BK and then paying new deposits. Any repairs needed on a vehicle? (As long as doing them won't put your vehicle exemption in jeopardy.) Attorney's fee for filing BK...

Chances are some of the money will be lost to the trustee if you file before 10-17 depending on what exemptions are allowed.

If unemployed after 10-17, the BK standards won't disqualify you from filing, but will include more hurdles to jump.

If you withdrew the money from your 401k, will you not have to repay it back? I was watching Suze Orman and there was a situation where money was 'borrowed' from a 401k, and the individual was laid off. I cannot remember the exact situation, but it involved one of them borrowing from the 401k, then getting laid off, then having to repay the money back. Their end result was bankruptcy. If I'm incorrect, don't 'blast' me. Just providing my insight of what I recall hearing. Good luck!!!

[hhou812hh]

I think under new law paying back 401k loans is allowed and not considered disposable income as it is considered dispoabale income under current law.

You may want to get a second opinion on this.

If the above is true at least congress did more to encourage retirement savings through bk. I guess they have no choice since almost every baby boomer will be spending our golden years on welfare.

[EdytaHome]

Wild Card Exemption

We filed in MI and used the wild card to write off $2000 in the bank plus a $3000 tax refund. We also included our 3 paid off cars, furniture, and motorcycle in that. The trustee can't take it if it's allowed under the wild card exemption. By the way we filed using federal guidelines, $20,000 combined wild card exemption for married couples. We kept no real estate property, gave up 2 houses.
Good luck.

[hhou812hh]

Actually I thought that if you borrowed from your 401k and left the job for any reason the employer who usually loans you the money get paid back immediatly and you will pay a 10% tax penalty (depending on your age) plus the money will be added to your taxable income. This is why financial advisers usually tell you that 401k loans can be risky and not to do it unless you must.

A second opinion maybe a good thing. While I think the above is true I'm not 100% positive.

Just to mention that this is the reason that I mention on several posts that we should all save more "liquid" assets for hard times even if it means saving a little less for retirement. I too contributed the max amount to my 401k and when trouble arose I withdrew it paying like 2k in taxes which left me broke again. My stupidity kept cycyling one after the other and before I knew it I'm back to bk .

Good luck!