Can you take a loan on your 401k right before you file chapter 13?

Answer 1

Don't do it, don't do it, don't do it!

Your 401k is exempt from seizure under virtually all circumstances...including bankruptcy. (Example...OJ Simpson, owed a lot to the browns after the won the wrongful death suit....they could take his Heisman trophy, his cars, his future income from autograph signings, etc, etc....and did and continue to. As a judgement, he can't even escape it through BK. But, they can not touch his multi million dollar 401k.)

if you take a loan against it, the money is no longer protected...it can and will be taken by creditors...given the opportunity....and you in serious financial problems now...so it's possible that would come about). Then your left with a loan to pay off, that uses up your 401k....and nothing else. Well, you'll have a big new tax bill and debt, because not paying back the loan of the 401k is the same as withdrawing it...so you pay a penalty and everything becomes income!

Don't do it, Don't do it, Don't do it!

Answer 2

NEWS ALERT: YOUR IN BANKRUPTCY...YOU HAVE TROUBLE HANDLING FINANCES, You have more debt than you can handle...COMMON SENSE: BORROWING MORE TO GET OUT OF DEBT DOESN'T WORK!

Don't do it, don't do it, don't do it!

Your 401k is exempt from seizure under virtually all circumstances...including bankruptcy. (Example...OJ Simpson, owed a lot to the Browns after they won the wrongful death suit....they could take his Heisman trophy, his cars, his future income from autograph signings, etc, etc....and did and continue to. As a judgement, he can't even escape it through BK. But, they can not touch his multi million dollar 401k/IRA.)

If you take a loan against the 401k, the money is no longer protected...it can and will be taken by creditors...given the opportunity....and since your already in serious financial problems now... it's highly possible that can come about. Then your left with a loan to pay off, that uses up your 401k....and nothing else. Well, something else - you'll have a big new tax bill and debt, because not paying back the loan of the 401k is the same as withdrawing it...so you pay a penalty and everything becomes income!

Don't do it, Don't do it, Don't do it!

Read the News Alert Again: Making a new debt can only make your problems worse.

Answer 3

Yes, but if your income will be too low to make the plan payments along with your other monthly expenses, you will have to amend your plan, if possible. Talk to an experienced bankruptcy lawyer

Answer 4

401K money is protected from the bankruptcy trustee. So, I would not touch it at all.

The only thing dumber financially than doing what your are suggesting is to take a loan against the account.

YOU NEED PROFESSIONAL HELP WITH YOUR SITUATION IF YOU DON'T UNDERSTAND WHY!

Answer 5

If you keep your 401K active, that is, if you DO NOT WITHDRAW FUNDS, your 401K is not included in your bankruptcy estate. This means the trustee cannot take your 401K and use the money to pay creditors. Congress passed a law in 2005 that created a broad exemption for all tax-exempt retirement accounts which includes 401(k)s, 403(b)s, IRAs (including SEP, SIMPLE IRAs and Roth).

You can have an UNLIMITED amount in your 401K and the Bankruptcy Court cannot take this from you. These accounts are exempt regardless of using State or Federal exemptions. **Please note: Roth and traditional IRAs exemption is limited to the total value of per person $1,095,000.00

However, if you withdraw any funds from your 401K, it's fair game for the trustee. The last 341 creditor meeting I attended the trustee asked each person, that had made a withdrawal, about their 401K. They have a way of finding out if you've done this.

VERY SIMPLY- DOING WHAT YOU SUGGEST IS CONSIDERED ONE OF THE DUMBEST FINANCIAL MOVES ANYONE CAN DO. WITH THAT SAID, AND THE OBVIOUS REASONS WHY IT WOULD BE....GET YOURSELF PROFESSIONAL HELP NOW WITH ALL THINGS FINANCIAL AND BANKRUPTCY.

Your 401k is protected in BK. Your loan is not. You will lose the money from the loan (anything within 2 years of the BK can be seized), yet the loan will still exist and wipe out your 401k, leaving you with --- A HUGE TAXABLE ICOME & PENALTY for withdrawal bill.

GER HELP TODAY.

Answer 6

It's better to wait until your chapter 7 is closed, usually about 6 months after filing. The funds in the 401(k) are exempt from claims, but once you take money out of the 401(k), it is no longer exempt.

Answer 7

Leglly, sure. Would you want to atke that portected asset/money (while in the 401) and unprotect it and make it subject to the BK....I should think not.

Answer 8

No you can't it will be almost impossible to do so don't try to.

Answer 9

No