Can I tap into my 401k ...

[stanpendula]

... after discharge, but while the case is still open? I want to buy a house with a loan from my 401k.
Do I have to tell the trustee ? My case is an Asset case .

Thank you.

[AngelinaCat]

NO WAY!!! Leave everything alone until your case is CLOSED. Depending on your case, closure may take up to a year or more.

Then after that, you are going to have endure the derision from all of us here that sacrificed our 401s to stave off bankruptcy, THEN found out what a huge, *S*T*U*P*I*D* mistake we made.

Now, with that said, if you are close to retirement, or already in that mode, then what you propose makes perfect sense--after all, this is what you have been saving for. But if you are not close to retirement, etc, etc, then you may be setting yourself up for a huge tax liability and penalty.

Please think this through, and discuss with your attorney, and CPA.

Good wishes to you!

[stanpendula]

Thanks for the quick answer. The amount I want to borrow is 50k for 5 years. The rate of return for my 401k was 1.28% for the last 2 years. If I borrow I pay myself back with 4.29%. Hooray stock market. The rent I pay is $1,450/mo. The rate if I borrow from 401k will be $950. Just sayin'.

The legality of the issue is what worries me. I sent e-mails to my attorney and CPA. Now I wait, but I'll keep you posted.

[AngelinaCatHub]

Oh that's really a great interest rate. (sarcasm) You will be penalized 10% as well as income taxes to the tune of about 40% in all. Real smart to rob your future. I see you back in bk in about eight years. Purchase a smaller home and with the amount of stock of empty houses you could buy contract for Deed. Just to take over someones house he is about to lose. There are other ways, but you picked the worst of them. You are shooting your own foot and you will never pay it all back, loan or not. You will never realize compound interest on the money that is not in that account. You will lose all the way round. Please do a search on 401K on this forum to see the multitude of those who are still mourning over this decision including us. 'Hub

[AngelinaCatHub]

To add, 401K is exempt. Once you pull that money, it is part of the estate and is fair game as an asset. You need Court permission to incur new debt while in bk. The money will be seized, and you will still owe the loan that you will end up not paying and the IRS will want your taxes and penalty. I cannot stress more about not even thinking of that move. 'Hub

[mountanddo]

Do you take a 10% penalty and pay the 20% taxes if you take a loan rather than just cashing out? Good points Hub but next time tell us how you really feel ;)

[AngelinaCatHub]

Do you take a 10% penalty and pay the 20% taxes if you take a loan rather than just cashing out? Good points Hub but next time tell us how you really feel ;)

No not on the loan itself. However, it is rare that they are paid back and if you tuck it back into a withdrawal then the hit. How do I feel about it? Let me count the thousands of ways. Oh about a quarter million at the time. All I can say is boo, hoo. 'Hub

[HHM]

Is the 50K enough to pay for the house, or is that a down payment?

In any event, to share the sentiments of others, doing the loan is generally a financial mistake no matter how you slice it.

However, to answer the BK related question, NO, you cannot do the withdrawal while the case is open. All assets, even exempt assets, are part of the BK estate until either the case closes or the trustee affirmatively abandons the property.

[stanpendula]

Wow, I didn't take such a beating in a long time ! OK, so the money will stay in the plan. THANK YOU, again, for being here!

Now, regarding the "Just to take over someones house he is about to lose. " idea, 1st, it is a Fannie Mae property, so the guy already lost it, and 2nd, let me tell you all a story of what is happening now in the quiet, peaceful city of Phoenix, Arizona (just because it drives me nuts): houses are up for sale at auctions, investors come and buy in bulk, with cash, without even knowing what are they buying, for 35-40k per house. Some of the houses become rentals, some are re-sold for 5 - 10k more. Bang!, just like this! 90% of the ones re-sold are bought by smaller investors, who, with a little extra improvement, are re-selling them again, for 5-10k extra. So, in 2 steps, the price is up 20k. Let's say the house is now 55k, for sale in MLS - in 1 day there are multiple offers, from average Joes to, again, investors who want another flip. The house gets sold for 60k. My curiosity is: for how long can the market take this new artificial price increase?

[doni49]

Regarding the taxes and early w/d penalties, I was previously told that if a person were to withdraw mone from a retirement account early AND used the money to buy a house as a FIRST TIME BUYER, he/she would not be penalized. The person has to close within a specified period of time (which I don't remember the time frame) but that's something to consider.

[AngelinaCatHub]

Wow, I didn't take such a beating in a long time ! OK, so the money will stay in the plan. THANK YOU, again, for being here!

Now, regarding the "Just to take over someones house he is about to lose. " idea, 1st, it is a Fannie Mae property, so the guy already lost it, and 2nd, let me tell you all a story of what is happening now in the quiet, peaceful city of Phoenix, Arizona (just because it drives me nuts): houses are up for sale at auctions, investors come and buy in bulk, with cash, without even knowing what are they buying, for 35-40k per house. Some of the houses become rentals, some are re-sold for 5 - 10k more. Bang!, just like this! 90% of the ones re-sold are bought by smaller investors, who, with a little extra improvement, are re-selling them again, for 5-10k extra. So, in 2 steps, the price is up 20k. Let's say the house is now 55k, for sale in MLS - in 1 day there are multiple offers, from average Joes to, again, investors who want another flip. The house gets sold for 60k. My curiosity is: for how long can the market take this new artificial price increase?

Easy answer. There are more empty houses than buyers. Let's say, just for example, a 200k house falls in value to 100k. Someone buys it for 60K. Puts in 10K and sells it for 80K all fixed up. Have you lost anything or still picked up a bargain. IF you can swing a contract for deed, it is like renting to own. You can forfeit the place no big deal with a very small down payment. When you pay through you will get a clear Deed. Cheaper than rent and it belongs to you. You must keep up the payments though.

You are not looking at all options available. Become an entrepreneur. Also if you are handy, and can swing a cash loan, look at your county's tax deed sales for junk homes and fix them up. 'Hub

[NoMoreCards]

You are not looking at all options available. Become an entrepreneur. Also if you are handy, and can swing a cash loan, look at your county's tax deed sales for junk homes and fix them up. 'Hub

Agree 100% There are many different options available. Be creative!

[AngelinaCatHub]

Wow, I didn't take such a beating in a long time ! OK, so the money will stay in the plan. THANK YOU, again, for being here! LOL. Not meaning to do that.

Now, regarding the "Just to take over someones house he is about to lose. " idea, 1st, it is a Fannie Mae property, so the guy already lost it, and 2nd, let me tell you all a story of what is happening now in the quiet, peaceful city of Phoenix, Arizona (just because it drives me nuts): houses are up for sale at auctions, investors come and buy in bulk, with cash, without even knowing what are they buying, for 35-40k per house. Some of the houses become rentals, some are re-sold for 5 - 10k more. Bang!, just like this! 90% of the ones re-sold are bought by smaller investors, who, with a little extra improvement, are re-selling them again, for 5-10k extra. So, in 2 steps, the price is up 20k. Let's say the house is now 55k, for sale in MLS - in 1 day there are multiple offers, from average Joes to, again, investors who want another flip. The house gets sold for 60k. My curiosity is: for how long can the market take this new artificial price increase?

As said, make a small hobby right now. Look at your tax assessors website and get the parcel number on some of the tax sales, look up Public Records for lis Pendins and you have time now to consider a fixer upper. Camp in the place while fixing it up. Turn it as you said those speculators do. Remember, those houses were vacant when they bought them what makes you think they can sell them easier than the guy who lost them? Give it a try. I'm in FL and we are averaging 25% empties and for sale sign litter the roads. 'Hub

[AngelinaCatHub]

Here is a handy link. Try your State and County. Check out the priced here in FL. 'Hub

http://www.homepath.com/listingdetails.html?openHouse=&src_ref=&openhouse=&cno=107&pi=&mlsid=&bhi=&z=32177&y=15&x=47&pa=&st=FL&bdi=&ci=palatka&listingid=22108291

http://www.homepath.com/search.html?q=PHOENIX%2C+AZ&pi=&pa=&bdi=&bhi=&x=34&y=12

[mountanddo]

You have to be very careful when you are contemplating buying a house with the intent to flip it. My BF bought a house for 90k 8 years ago. It isn't in a great neighborhood but it isn't considered the slums either. He put 15k into it. 3 years later he applied for a HELOC and the bank inflated the house value to 159k to support loaning 40k. He put it on the market about 1 year before the housing values tanked and he couldn't sell it then. It has steadily went down in value each year to where it is now worth 45k. He can't sell it as the block he lives in is now swarming with rental houses that take section 8. His neighbors have probably 10 different people that live with them and deal drugs out of the house amoung other things. The police are continually called to the house yet the landlord does nothing because he lives 200 miles away. The landlord collects the money section 8 gives him and doesn't collect what he is supposed to from them. Section 8 could care less. Numerous complaints have been filed and as long as there hasn't been a murder committed at the property it is pretty much ignored. His block, when he moved in, had people that were older and kept to themselves. Within 2 years the whole demographic changed.

So I'd just be careful about buying a house outright. Are you prepared to lose that 50k should you not be able to sell it?