Can you take out a 401k loan before you file bankruptcy chapter 7?

Answer 1

You can, but this is just about the worst thing you can do. You lose in every way! Your 401 is protected and cannot be seized or used. If you take a loan from it, the money loses the protection and can be taken...even the deals you made with it can be reversed or considered preferential. Leaving you with a loan (that cannot be discharged), payments on it and essentially no 401. If you fail to pay the loan at any time, the 401 assets are defaulted and lost. Of course all these things make the "loan" become taxable income, incl the penalty for early withdrawal...etc, so you have no money, no 401 and @50% of what you took out is now a non-bankruptcy tax debt. There are many other reasons...and if you didn't recognize them....and especially if you feel that there is any question about what you can or cannot do before maybe, possibly, even fairly certainly, filing BK in the future...you need professonal help - legal and financial...NOW.

Answer 2

Yes you CAN, but if you do, that money would be part of the bk estate and can possibly be used by the trustee to pay your creditors (although there are some exemptions that might allow you to keep some or all- depends on your states exemptions and the amount you withdraw from the 401k)

What the above states is absolutely true (but the exemptions are so limited they essentially don't exist). The only simply stupied move than withdrawing your otherwise protected from bankruptcy retirement asset before filing bankruptcy is to loan against thhe account. That one, you lose the cash you take out and still owe the loan, which can't be discharged, to which interest and fee's, etc will preumably eat up whatever was left in the account.

Lets be frank - your even asking the question you did, shows such a lack of understanding of these things, that it isn't a huge surprise your contemplating bankruptcy....but you clearly should do nothing else financially - period - without getting expert counsel.