Ch 13 & 401k loan

[tmr76]

What is the name of your state? IL

I was getting ready to take a loan out of my 401k because it is doing so poorly right before we were served with the summons that ultimately led to us filiing for Ch 7. If we're pushed into a Ch 13 this week by the trustee, can I still do that (we need it for maintenance and tires on our car and truck) or are they going to take that from me once I withdraw the money?

 

[Elmo-1]

Not without trustee approval

If you end up in Ch13 you'll need trustee approval to get loans / credit of any type (even borrowing from yourself) above a locally approved amount, usually $1,000 or more.

If you take the money out before filing 13 you can keep it, but repaying it will not be an allowed expense. If you can exempt the cash, you won't have to pay it back as part of your plan; however, if the withdrawn cash can't be exempt, your plan will have to include 100% repayment of that money.

The other piece of this is that once the cash is out and exchanged for assets, the assets then have a better chance of being exempt than cash. No one can tell you how to spend your money before filing. The only thing you don't want to do is have someone hold it for you (fraud), or use it to pay a relative for a debt within a year of filing.

Should you end up in Ch7 and the 401k is exempt (and typically they are), you can make the loan after filing, but safely 180 days after filing. Discuss this with your attorney if you need it sooner than 180 days after filing (in Ch7).