pay back 401k loan?

[jribe]

Hello All,

I took out a 401k loan last year (stupid i know!) to get my husband a car.

It was $3500. Now, we are selling that car for $4500- and i am wondering if it is ok to pay back my loan? Or at least part of it?

That was the whole point in selling the car, to pay my loan...

We aren't filing until July or August.

Any problems to doing this?

[justbroke]

Taking out a 401(k) loan is not stupid, because you pay it back. Taking a 401(k) distribution is what's frowned upon because of the taxes and penalties!

So, the question is, will the Trustee object to this payback? I don't know. It could be construed to be converting a non-exempt asset (the car's equity) into an exempt asset (the 401(k)). Just depends on your Trustee and what they think of 401(k)s. Hopefully, you get a good lawyer who understands asset protection and knows how your Trustee feels about this sort of thing.

[jribe]

so if the value of the car was exempted- would it be okay to pay back?

I live in CA- and there's a 20k unused homestead exemption (and we don't own a home) so i have plenty for exemptions...

I didn't know if it would be a "pref payment" though?

Taking out a 401(k) loan is not stupid, because you pay it back. Taking a 401(k) distribution is what's frowned upon because of the taxes and penalties!

So, the question is, will the Trustee object to this payback? I don't know. It could be construed to be converting a non-exempt asset (the car's equity) into an exempt asset (the 401(k)). Just depends on your Trustee and what they think of 401(k)s. Hopefully, you get a good lawyer who understands asset protection and knows how your Trustee feels about this sort of thing.

[StartingOver08]

You are safer by exempting the cash and then paying back the loan after your discharge if you are a Ch 7.

There is no question that you can exempt the cash.

[justbroke]

What StartingOver wrote is right on target.