401k contributions

[bkondeff]

How are they looked at. I know your balances are exempt, but in terms of qualifying, are 401k contributions added back as income or are they considered eligible expenses. Bottom line, is if my folks are looking to file, should my dad stop any planned deferrals from his income?

[HHM]

For chapter 7, not counted. Thus, you cannot use 401K contributions to help you qualify for chapter 7.

For chapter 13, counted. Thus, in a chapter 13 payment plan, you can deduct the 401K contribution (to a point), as an expense.

[justbroke]

I'll only add to what HHM wrote, which is spot on.

In some Districts, they have determined that in a Chapter 13, you can only have one contribution to a 401(k) plan. (There are other imposed limits on the "percentage" but that's another topic.) In these Districts, a contribution cannot be made while you are repaying a 401(k) loan, as they consider the 401(k) repayment a contribution for purposes of the section 541 of the Bankruptcy Code. These same Districts will allow your plan to account for this and to continue plan contributions if and once the loan is repaid. However, they won't allow both a 401(k) contribution and a loan repayment at the same time.