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If you have a loan on a 401k from a previous job and are thinking of filing chapter 7 how do you file this loan?

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2013-02-28 11:55:33
2013-02-28 11:55:33

401k loans are required to be repaid unless the plan (that you took the loan from) has a provision about stopping them in the event of bankrupcy. Usually this only applies if tyou are still working for that plan sponsor. If you are no longer working for the plan sponsor, you are either having payments deducted from your checking/savings account or are sending coupons- ususally. Simply stop making the payments, and the loan will default. Default is simply a status change from "loan" to 'withdrawal". You will receive an IRS 1099 form at the end of the year so you can pay the income taxes owed and a probable 10% early withdrawal penalty tax (ask a tax preparer if you would be exempt, probably not). The loan "disappears", you have changed it to a withdrawal. It does not get reported to credit agencies, only to the IRS as regular income.

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all ERISA qualified retirement plans are protected from creditors in a BK.

Yes. You can roll a previous employer's 401k balance into a new employer's 401k. You can also roll a previous employer's 401k balance into an individual retirement account (IRA) if you wish to maintain control over the investments.

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.

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BK is a Federal thing...and 401k is exempt everywhere.

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

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to get the money away from the previous employer and to continue tax-deferral

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Try this website:http://www.fundadvice.com/401k-help/401k-plans/401k-safeway.html


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