There are certain things a debtor should not do before filing bankruptcy.
I will occasionally have a bankruptcy client ask me if she should withdraw money from her 401k before filing bankruptcy. I also have received questions about whether it is ok to take out of a 401k after filing bankruptcy. My answer is always “that is a bad idea,” but the reasoning as it pertains to a Chapter 7 or Chapter 13 bankruptcy is slightly different, so I will now tackle each one separately.
There are two reasons why it is a bad idea to withdraw from a 401k before filing bankruptcy. The first one is not specific to bankruptcy, but rather to general retirement and tax planning. The penalties associated with an early 401k withdrawal, plus the reduction in your retirement savings, truly make this an option of last resort.
Therefore, the only time I could endorse this strategy in any way is if the debtor is using the money to pay off creditors and avoid filing bankruptcy. I basically would never endorse a 401k withdrawal if it doesn’t resolve the debt situation.
The second factor in withdrawing from a 401k prior to bankruptcy is the impact on the bankruptcy itself. Money saved in a 401k is “exempt” in bankruptcy and cannot be taken by the bankruptcy trustee. However, when it is converted into cash before filing bankruptcy, it loses its exempt status and becomes a non-exempt asset in the form of cash.
Therefore, depending on the amount of money withdrawn from the 401k, it is possible the debtor can now be holding too much cash to exempt and might want to spend down the cash before filing to avoid liquidation. So if the debtor is going to withdraw from the 401k, she should make sure to not withdraw more money than she can exempt.
In a Chapter 7, withdrawing from a 401k after filing is a non-issue to a liquidation since the asset was exempted when the bankruptcy was filed. It would presumably still be an unwise move, but the Chapter 7 itself would not be implicated.
Withdrawing from a 401k in a Chapter 13 would have to be approved by the court because the debtor must commit all of her disposable monthly income to the Chapter 13 plan. Additionally, a 401k withdrawal in a Chapter 13 cannot be used to make the monthly plan payments (those should come from regular monthly income), so there would have to be some unusual reason for the debtor to even need to do this (perhaps a major home repair).
In theory, this withdrawal request would be granted if the circumstances warrant, but again this should only be done as an option of last resort. A Chapter 13 plan modification would most likely be preferable to a 401k withdrawal.
Peter Bricks is a Metro Atlanta bankruptcy and personal injury attorney with offices in Dunwoody, Woodstock and Cumming.
Chapter 7? I was let go from my job the day after I signed my papers to file. I had my (341) meeting of the creditors today. I will not be reaffirming on my vehicle. Can I withdraw my 401k money to purchase another vehicle before they repossess this one? I was planning on buying a vehicle with the money and willingly return the car to the bank. My paralegal said I could, the attorney says to wait.
Technically, to be the safest you can be, a debtor should wait until your Chapter 7 trustee files a “report of no distribution” or specifically abandons an asset before using it. A 401k is on paper an entirely exempt asset, so arguably a debtor does not need trustee permission to liquidate it. However, if possible, the safest approach is to wait until the trustee’s no distribution report or an abandonment of the 401k.
I was notified of a cash balance 401k in my name that I was unaware of, I am disabled. The chapter 13 payment is deducted out of my husband’s paycheck. Am I supposed to pay the bankruptcy off with my money?
I’m assuming you are a joint debtor in this Ch. 13 with your husband, but regardless, there is no expectation that you would use a 401k to pay off a bankruptcy plan. You would never have to withdraw from a 401k. The issues surrounding this blog are when you voluntarily decide to make a 401k withdrawal.
I haven’t filed bankruptcy yet, but intend on filing in Jan 2018. I wanted to withdraw money for my 401k to pay for car repairs(car is paid for) and buy some eyeglasses. Would this cause any issues?
It might not be the greatest idea to do this for non bankruptcy reasons, as 401k withdrawals are disfavored in general. Depending on the facts of your case, this could present problems as to the means test for example. More likely though, this is the kind of thing that will not impact your bankruptcy and might just be a bad idea in general with no harmful bankruptcy repercussions.
Can you withdraw from your 401k to pay off the remaining balance on your Chapter 13
Most likely the answer is yes, but this will be specific to your district and your judge. Talk this over with your attorney, but most likely you will need to file a motion to explain to the court why they should approve you doing this. If the court approves then you can do it.
Getting the money to pay for the legal fees is proving to be nearly impossible even with only paying utilities and our home and autos. Can I withdraw the 4000 for legal fees from my 401k.
Yes, you can withdraw from a 401k to pay legal fees before filing bankruptcy. It might not be your wisest option, but it is permissible.
My wife is in school fulltime am 60yrs old the only one working can i use some of my 401k to pay down on my bankruptcy to bring my payments down
I’m assuming you are referring to a ch. 13 bankruptcy and am answering in that context. It’s unclear who is the debtor. Assuming the person withdrawing from the 401k is the debtor then they will need to seek court approval first to do so. If the person withdrawing from the 401k is not the debtor, they would not need to seek court approval; however, the court would have an interest in the situation because it would be relevant to the feasibility of the plan going forward (i.e., how will the debtor pay for the plan going forward when the 401k withdrawal money is gone).
Separately, I don’t believe the court will allow a debtor to withdraw from a 401k strictly to pay an extra amount to the plan payment now and reduce the monthly obligation going forward. You will probably need a different reason to get a 401k withdrawal approved if you are the debtor.
To piggy back on your response above, I am in the same boat with a Chapter 7. I filed Jan 2 and have our 341 meeting on Feb 12, 2018. Can I withdraw my federal Thrift Savings Plan/401(k) plan as an eligible federal retiree to help pay for a move to a less expensive rental now or after the 341 meeting? Unfortunately, I have to withdraw the entire amount of $18K. My lease is up on Mar 31 and I need to get to a cheaper place which is driving the necessity to cash it out sooner rather than later. Thanks for your quick reply!
I generally don’t recommend withdrawing from retirement plans in general. In particular, I don’t advise doing so before the 341 hearing. Even though you have presumably claimed the entire asset as exempt by virtue of not being property of the bankruptcy estate, it is a better practice to wait until after the trustee abandons all your assets before disposing of them. This is true even for those assets that are either fully exempt or not property of the bankruptcy estate.
I am in a chapter 13 about a year and a half of the 5 year plan. My question is: I did not report my IRA when I filed but this is the 1st time I am filing tax returns after the conformation. I am reporting it on my Fed income tax return. Is there a possibility of a problem?
My husband was fired & took his 401k in 2017. We are going to file bankruptcy soon in 2019. Since we have to show 2 years of tax returns could there be a problem that we had that money? We lived on it & it’s gone.
No, people spend their money and run out of it all the time- whether it was from general savings, a 401k withdrawal or just regular monthly income. Running out of money is usually why people file bankruptcy, and there is no bad faith in filing bankruptcy for this reason. The 401k withdrawal might have caused you to owe income tax debt that you will not be able to discharge in a bankruptcy, but the withdrawals themselves are not a problem that would prevent you from filing bankruptcy.
We are about to file for bankruptcy and my husband has an IRA account. We need to get 6000 dollars for legal fees, tuition and necessities. Will this hurt the bankruptcy process to Be denied.
Yes, you are allowed to take money from your IRA to pay your legal fees, etc.. before you file bankruptcy. In reality you are just moving money from your left hand to your right hand by transferring from an IRA to a liquid source, and this is a permissible way to pay some bills before filing bankruptcy.
I am in a chapter 13 about a year and a half of the 5 year plan. My question is: I did not report my IRA when I filed but this is the 1st time I am filing tax returns after the conformation. I am reporting it on my Fed income tax return. Is there a possibility of a problem?
I have the same situation., as above … but need to understand you better. So. Once my bankruptcy has been discharged. It is save to take money out of my 401k to put down as a deposit for an apartment??? They meaning the court cannot come back on me in anyway. Thank you for your reply.
Yes, you can take money out of your 401k after a discharge. This would be a non-issue with the bankruptcy court.
What about a 403b? My bankruptcy was discharged in October 2018 and I would like to take out the money in my 403b in June 2019 but I don’t want that money taken from me.
It appears as if you are saying the bankruptcy is concluded. If so, there are no issues with taking money out of your 403b, or any account for that matter.
We just filled bankruptsy they haven’t told us what one we qualify for yet but u had already taken out my 401k from my company we are letting both our vehicles go back and want to use the 401k money to get vehicles with ones we can pay for in cash do I need to hurry up and spend the money?
I am unclear from your question if this is a Chapter 7 or Chapter 13 bankruptcy.
Question. I fed Chapter 12 last January. We completed the FASFA, a required form for our daughter for college. She cannot receive scholarships because we made too much before bankrupsy, and cannot assist with loans due to the bankruptsy. I want to take a student withdrawl from my 401k (I do not pay it back) for my daughter to go to college. This is the only way we can help her. She is working and contributing as well. She was accepted to UT-K, but has opted to attending a cheaper college. Can we do this as we will not have any of the money and do not have to pay it back.
I think you mean chapter 13 and not chapter 12. This will be somewhat district specific, but most likely you would need to file a motion for court approval to make this 401k withdrawal. It will be fact specific as to whether it is allowed.
I got terminated from my job and am going to cash out my retirement, i am in ch 13 will they take my money?
If I understand your question correctly, you are wanting to do a retirement plan withdrawal while staying in a ch. 13 and want to know if you will get to keep all that money. This will be both district and trustee specific. More than likely, you will be able to retain at least some of the funds, and perhaps all.
However, the question you should also be asking is if you should be converting this case to ch. 7 or dismissing your ch. 13 entirely? You should at least be considering those possibilities, although it will depend heavily on the facts of your case, and I can’t give you a general answer.
I’m in a Chapter 13 and the per check payment amount has been set and we are 7 months in that process. We will have to replace a vehicle this year and would like to borrow from our 401(K) since we have no other borrowing option. Our income has risen from last year due to pay raises which should cover the car payment. Do I still need to contact the bankruptcy court before doing this since it won’t impact those payments?
This will vary by district, but almost certainly you will need court approval to withdraw from a 401k during your Chapter 13. Talk to your attorney and/or trustee to see what the process is in your district.
My daughter’s bankruptcy atty said she could withdraw her 401k after seeing the trustee. Does she not have to wait until discharge and closure? When will she know it’s safe to withdraw the 401k?
This will be a different process if it’s a Chapter 7 or a Chapter 13. If it’s a Chapter 13, this would almost certainly require a motion and court approval. If this is a Chapter 7, it is most likely permissible for the debtor to withdraw from her 401k at this time.
I filed Chapter 7 on Feb 8th and my meeting is May 1st. My question is regarding a 403b loan. I would like to borrow 2500 from it. I actually already sent in for it because I figure they don’t ask about money on hand now but when you filed. I just want to double check that it is ok from a legal standpoint outside of that you said nothing is officially exempt until the trustee says so. Also the only thing I have for cash is my taxes that I haven’t received for 2k but nothing else.
Assuming you are just withdrawing from an exempt retirement plan, or property that is not even technically “property of the bk estate,” there should be no issues. When I say nothing is officially exempt before the trustee says so, I’m saying you could be wrong about whether something was exempt (example: a purely liquid stock that you thought was an IRA).
We are 2 1/2 years along into our chapter 13.
Our car developed a rupture in engine block and needs repair
If it can’t be fixed, we would like to purchase a better car.
Husbands 401k is not listed in bankruptcy cadet
Would we have a problem withdrawing funds to pay for car repairs and/or purchase a better car?
I’m unclear whether this is an individual or joint bankruptcy. If the 401k belongs to a non-filer, the court would not have authority to prevent a withdrawal. If it belongs to a joint filer, this would seemingly need court approval. In theory there are some districts that would not require court approval for this withdrawal, but most likely most, if not all, districts would require a 401k withdrawal be approved by the court beforehand.
Can you take a loan from your 401k to pay off your bankruptcy in chapter 13? I would rather be paying the money back to myself with interest than paying the trustee fees and I would like to be out from underneath an active bankruptcy.
The answer is maybe. This is going to be district, trustee and judge specific. You would certainly need to file a motion for court approval to do this, so the question you are asking is the likelihood the judge would approve it. It will probably depend a lot on the facts of your case, and there is no bright line answer to what would happen.
I am in the process of filing a chapter 7. I am going to surrender my lease during this process. I have the option to take 5k from my 403 b to purchase a vehicle outright and avoid having a car payment. would this be allowed?
Assuming you are correct that you are going to be pulling funds from an exempt retirement account, the answer is that yes it is allowed in a chapter 7 to pull money from it and purchase a vehicle. It’s probably more prudent to wait until after the case is filed to do this, but most likely you could exempt the vehicle equity even if you did this prior to filing the bankruptcy.
My daughter lost her job but is age 40. she want to withdraw money from 403b monthly to pay living expense only(rent Gas&E,auto INS) at the same time want to file bankruptcy chapter 7. Will this withdrawal cause a problem with bankruptcy?
There is not enough information to fully answer this question. For example, how much money would she be withdrawing? Would she be withdrawing it before or after the bankruptcy is filed? If she is withdrawing it before the bankruptcy, which exemptions is she using and can she fully exempt all the funds?
Generally speaking, the less she is intending to withdraw, the less this is likely to be problematic. However, the answers to those questions certainly matter and are important. Please contact a good local attorney and get those questions answered prior to making the 403b withdrawal.
I have file my bankruptcy chapter 7 already had my meeting with the trustee and just waiting for my court date to see the judge, I just lost my job and no income coming in can I withdraw my 401k or will I get in trouble.
In a typical Ch. 7, you do not see the judge or have a court appearance after your meeting with the trustee. Therefore, I would want to know more details as to why you have an appearance in front of the judge, if you even have it at all. However, to your question, there should be no reason you cannot withdraw from an exempt asset at any time in your case, particularly if your trustee has already filed a report of no distribution. A withdrawal from your 401k now should be permissible barring some very unusual fact pattern.
I was terminated from my job and file chapter 7, went in for my 341 meeting then again for a 2004 examination of debtor. Long story short I am on a repayment plan for $4000 because the Trustee stated I didn’t mention this money even if it was used to pay my mortgage until I find another job. I want to take money from my 401k to pay this off, so I can be discharged as well as help pay some bills. If this a good idea?
It is rarely a good idea to withdraw from a 401k, but without knowing the totality of your situation, all I can say is there should be nothing impermissible about this withdrawal as far as the bankruptcy court is concerned.
I am filing for chpt 13 bankruptcy. If I quit my job after the case has filed and I am making payments and I get a different job can I cash out my whole current 401k without them taking that money? There are so many things I could use that money for.
The first thing you need to ask yourself is why do you want to remain in your Chapter 13 case. It’s almost impossible to make a Chapter 13 case work without a steady job, which is what the chapter is designed for. As for the 401k withdrawal question assuming you have a good reason for staying in Chapter 13, you would need to file a motion to the court and show the judge why you need to do this 401k withdrawal and remain in Chapter 13.
I met with an attorney he advised me to file a chapter 7 (it was just a meeting no motions filed or money paid). I pulled from my 401k after the meeting to pay bills and catch up on alot of things. Also to repay family members. I was hoping to be in a better financial state. Now nearly 4 months later the money is gone. Family has been paid back mortgage is caught up. Can I still file bankruptcy even though I pulled that money?
Although there could be some pertinent facts I’m missing, what you appear to be describing is that you made preference payments to your relatives. The look back period on making repayments to “insiders” is one year. In other words, if you filed bankruptcy within one year of these payments to family members, the trustee can potentially pursue those sums from your family members. Again, there are some unique facts that could come into play here, including the amount of these payments, but generally speaking you have a potential problem with filing bankruptcy now.
The recommended thing to do now is to consult with a bankruptcy attorney and discuss whether it’s prudent to file now or wait.
I have filled Chapter 7 Bankrupcy I already had my meeting last month just waiting 1 more month to be discharge. Is it ok to withdraw from my 41k $500 to pay tuition for college before my discharge?
A 401k is an exempt asset, so there should be no issue withdrawing from it in a Chapter 7. Additionally, since you said you have already had your trustee meeting, it’s very possible that your trustee has filed a “report of no distribution.” If so, you have full access to do what you want with all of your assets.
I’m about to file chapter 13 but I’m in process of paying on my price for the bankruptcy first so once I’m done then the paperwork gets filed with the courts so with that being said I would like to borrow from my pension fund how does this work?
This will be district specific, but I suspect your court will require you to seek court approval to borrow from your 401k during the ch. 13. They might not grant it because a ch. 13 is about consistent monthly income. If you need to use your 401k to fund your plan payment, it’s an indicator you cannot afford it.
Hello- I took out a 401k hardship loan a month prior to filing to catch up on my house payments so that I didn’t have to put it in the Chapter 7… I have about 500.00 left of the money, will the w/d cause issues with the Bankruptcy? I don’t want to get into any legal trouble for doing this.
Thanks
I’m unclear what the potential concern here is. I think you are wondering if the payments to get caught up on the mortgage before filing bankruptcy were a “preference” perhaps. First off, it did not really make sense to do things in the order you did, and I’m not sure why you felt the need to get caught up on your mortgage before filing ch. 7. I think you did it because you are confused about what gets “included” in a bankruptcy filing. All debts get “included” regardless of whether they are dischargeable, or whether you want to keep them, etc… so your mortgage was “included” whether you were current or not, or whether you wanted to reaffirm the loan or not.
Therefore, you gleaned no advantage by getting caught up before you filed Ch. 7. Also, the $500 you are retaining is no big deal, as you can exempt that much cash under your state or federal exemptions.
The mortgage payments themselves were preferences, but I’ve never seen a trustee pursue those under that theory. I suppose if the amount you paid to get caught up was a large amount ($10,000 or greater), the trustee might try to undo those mortgage payments. If it was just something like $2,500-$5,000, it should not be an issue. However, ymmv by trustee.
My husband took out 26000 2 months ago from his IRA account. He lost his job and we didn’t have enough to pay bills. At the moment we didn’t consider bankruptcy, we were hoping he would get called back to work. We used money to pay property taxes, IRS, hospital bills and money until my husband finds a job. How will this effect bankruptcy
Not knowing when the bankruptcy might filed or all the places the money went, I can’t say this is entirely not problematic should he file bankruptcy. However, it appears as if the money was just used to pay creditors who were not “insiders,” and all of these payments are probably permissible and won’t create an issue in a bankruptcy filing. The other issue you didn’t address is how much cash he is still holding. He might still be holding more cash than he could entirely exempt if he files bankruptcy soon, but my guess is he has spent down the vast majority of the cash and this is not a problem.
They are taking my car in my bankruptcy chapter 7. I don’t know when they are picking it up. I go to alot of doctors due to medical conditions do I have to wait till my meeting to withdrawal from my 401k to buy a cash car? I can’t be without a car and my meeting isn’t until June 27th.
Your 401k is an exempt asset, so you should be able to withdraw from it during your case. That being said, you get the “automatic stay” when you file your bankruptcy, so it’s highly unlikely that your car would be repossessed prior to your creditors meeting, which usually occurs around five weeks after the case is filed. The lender would have to get an order lifting the stay to repo the car prior to your creditors meeting, and that rarely happens. If the lender has not filed a motion to lift stay, it would be violating the stay to repo the car prior to your trustee meeting.
Just got my discharge papers for chapter 7 can i now cash out my 401k?
It may not be wise to do so, but yes, there is no restriction against withdrawing from your 401k after your Ch. 7 has concluded.
I filed chapter 13 bankruptcy but I would like do a hardship withdrawal. I have been to 341 meeting and is it okay for me to withdraw from my 403b even though i have not been before the judge. New at this on because I am going to send the papers off this morning and need answered fast.
This is somewhat a district specific question, but I would have to assume the answer is in your district you must seek and get court approval first before making this withdrawal. Also, Chapter 13 payments are supposed to come from “regular monthly income,” so it is problematic to your plan’s long-term success that you would need a 403b withdrawal within months of having filed bankruptcy.
I m filing chapter 7 August 28 2018. Can I take small amounts from 401 k for nessities to live on now.
While technically you really should wait until after your trustee has issued a report of no distribution, because a 401k is exempt, a withdrawal during your Ch. 7 should be permissible.
We have an unusual situation. My husband lost his job temporarily and we are drowning in credit card and medical bills. We talked to an attorney about filing a chapter 7, but my husband will be out of work for at least another month and a half. We wont be able to file the ch 7 until October since when employed, my husband makes too much to qualify for it. That being said, we only have a couple thousand dollars put aside to last us through this unemployment period. Would we be able to pull some money out of our 401k (not the full amount) to pay legal fees and help us get through the next few months? We want to be able to keep our vehicles in the bankruptcy so we need money put aside to stay on top of those payments as well as out insurance and other living expenses.
You would need to review local opinions to see if a 401k withdrawal is considered “income,” such that a withdrawal will through you further behind on your means test calculations. That being said, you can always file a Chapter 7 even if your means test shows a presumption of abuse and argue that the presumption is wrong because of your current income situation. Your situation is really one that you need to know how the judges in your district typically rule should you decide to file ch. 7 while the presumption is not in your favor. Assuming you wait until you “pass” the means test to file, the 401k withdrawal should not be an issue in your case.
In April 2016 I had a stroke, I also have had MS for the past 18 years, it has messed with my central nervous system. I am disabled now, after working 21 years at a good paying job. I now receive long term disability & Social security disability, but I have now less money to pay out for bills. About 2 years ago I reached out to a lawyer (free consultation)& he said, now is not a good time for bankruptcy. You don’t have to worry, unless somehow they figure out how to garnish money from you. So for about 2 years I have been dodging phone calls & a couple of court summons. with-medical bills, credit cards, loans, car payment, I recently received letters about my pension & 401k about getting early withdrawals. With medical bills, credit cards, loans, car loan (that eventually got repoed) I took about $25,000 out of my 401k to get a decent car & planned to pay some on my credit cards. Should I not pay anything on credit cards & just plan on filing bankruptcy on it all? I left some retirement in a guided investing & I never touched my pension. I’m really am stressing, what I should do? Sacred by my moving my 401k around, now it might be set up for some kind of garnishment!
What you should do is find a good local attorney and go over your complete financial position with that person. I cannot give general advice as to whether the filing of the bankruptcy makes sense without knowing your complete situation. I do not recommend filing pro se, so get an attorney. You can consult nacba.com for a good local counsel near you.
Had meeting of creditors/ Trustee yesterday, on chapter 7. The same evening My fiancee lost his job, and his accounts were frozen for bank taxes, which they’ll be paid in full. Freeze won’t be lifted for 15 days, so I withdrew money from 401k to help him out, without thinking about my bankruptcy. Is this ok? Took under 1200.00.
You should not have problems withdrawing from a 401k during a Chapter 7 because the asset is exempted from your bankruptcy estate.
I am in the process of a chapter 13, it been almost a year and they are still trying to work out the means test. My income has changed and the bankruptcy is in my name. All of our joint debt has been distributed to my husband. My husband has a tsp that he was going to do a withdrawal to help pay some of the debt off. Can he do that if the bankruptcy is in my name.
If I understand your question correctly, you are actively in ch. 13, and your husband is not a party to the case. I’m unclear if your case has been confirmed. Assuming your husband is not a party to the bankruptcy, there should be no issue involving court approval for him to withdraw funds from his retirement to pay his creditors, albeit joint ones with you. Your plan probably calls for him to pay these debts off in full, which is what he appears to be doing.
If you have an attorney, run it by him/her, but my guess is regardless of whichever district you are in, this is permissible and very possibly does not even need court approval.
I am in a chapter 13, I am afraid I am losing my job. I have 10 thousand in my 401k, if I take that in cash if I lose my job will the trustee take that cash from me? I need something to live on and pay my bills.
You should not be able to take money from your 401k while in ch. 13 without court approval. The court will possibly not approve you taking from a 401k while in ch 13 to pay your plan payments since that should come from “regular monthly income.” This will be district specific, but it very well might be approved.
The greater issue however is why are you in ch. 13 and not ch. 7? If you cannot afford the ch. 13 plan payments you should probably be considering converting to ch. 7, assuming a ch. 7 discharge would benefit you, and you are not otherwise ineligible for ch. 7.
I am about 2 1/2 years into my Chapter 13 bankruptcy plan here in New Jersey. I need to help out my son with the closing costs of buying his first Co-op in the city. I work in a local Hospital, so the retirement account is a 403B. What would the penalties be for withdrawing money to help him out with his real estate purchase.
The amount of any “penalties” is a non-bankruptcy question. Whether there are any 403b withdrawal penalties is not specific to bankruptcy.
The only bankruptcy question I see here is whether the court will approve this withdrawal, as you are proposing to withdraw from your retirement to pay your adult son. The answer to this question is both specific to your district, as well as the particular facts of your case.
lost my job after i file for chapter 7. was denied unemployment. withdraw from my 401k cashout. Can i cash out my check.
I’m unclear where you are in the Chapter 7 process (has your case been discharged or perhaps the Ch. 7 trustee abandoned your assets yet?). That being said, a 401k is an exempt asset, so you should have no problem withdrawing from it if you want.
Can I borrow from my 401k to pay for the legal bankruptcy fees?
Yes, while it may not be the most prudent thing to do, withdrawing from your 401k to pay legal fees is permissible.
Hi, I withdrew from my 401k (4,000) back in mid September to fix my car and to catch up on rent and a lot of past due bills, after a medical garnishment sank me. I continued to drown and recently decided to file bankruptcy. I retained a bankruptcy attorney and we decided chap 7 is the best route. (Used what was left of my withdrawal for the $800 fees) I am still in early stages of it (haven’t officially filed) but will be signing final paperwork within the next week and paying the $335 filing fees. Will my withdrawal from my 401k affect my bankruptcy filing in any way?
There should really be no implications to your bankruptcy filing for withdrawing from your 401k. Technically, the $4,000 withdrawal might count as “income” for purposes of the means test; however, if you are living paycheck to paycheck, it’s unlikely even if that is going the distinction of income, that it would cause you to not qualify for a ch. 7 discharge under the means test.
I’m about 11 months away from finishing a chapter 13 for almost 3 years can I purchasea fixer upper house afterwards and how long does it take after you made the last payment that you our in the clear of all debtors
There are two components to what you are asking. The first part is when will the bankruptcy court itself by an impediment. The answer is that as soon as you are done with your case, the court no longer has jurisdiction over you and you can purchase whatever you want in that regard. The second part is much more challenging, as I am assuming you are referring to purchasing this property through a loan. If you have the cash for it, then it’s a non-issue. If you mean through a loan, then it will come down to how quickly you can qualify for a loan to buy this house. The answer to that will come down to a variety of factors that are better suited for a mortgage broker to answer.
I withdrew my 401k (I received $9700) I plan on paying my bills 6 months in advance, paying for bankruptcy ($60k in debt), but would like to keep $2000 to help cover expenses when I have my baby in 4 months. (single mother) Will this be possible? Or will I have to surrender the $2000?
The answer to whether you can keep $2,000 is almost certainly yes; however, it depends on whether you can exempt it. This will vary based on your other assets, as well as which kind of exemptions you are using. You need to discuss this with your bankruptcy attorney.
I am not sure what you mean by “paying bills 6 months in advance.” This could be a problem, particularly depending on which bills you are referring to. Assuming you could exempt all the remaining money from the 401k withdrawal anyway, the more prudent thing would probably be to hold the money in savings. Again, this comes down to how much cash you can exempt, which will be specific to your facts.
If I’m I. chapter13 and retire, I want to take a plop from my OPERS retirement. Is this allowed? I need a car, extensive home repairs. The remaining monies would remain in a Roth.
There is no general answer to this question and it will depend on the specifics of your facts, trustee and judge. In theory this should be allowed, but there are too many variables to know if the judge would approve it. You can file a motion to withdraw from your retirement and set it for a hearing.
We are 3+ years into a Chapter 13. We are 64 and 66 years old. We would like to partially withdraw funds from our 401K to payoff the Chapter 13. Is this allowable? We are in the Northern District of GA.
In theory this would be allowed; however, it would depend on your specific facts whether it would and if you would even want to try this. I’m not sure what you mean by “payoff the Chapter 13.” It will make a big difference here whether you are in a 100% plan or not, as well as your commitment period.
The prudent thing to do is to discuss with your attorney whether this would in fact conclude the ch. 13 or not. You would then file a motion seeking court approval, assuming you still wish to go forward.
I withdrew my entire $23000 retirement account to live off for the next year while I am have and recover from surgery. This was unfortunately done on the day I filed rather than after (I requested it a month earlier). She don’t have the money yet though. Is money received on the day of filing counted as after filing and exempt, considered as part of the retirement account still, or included as cash in the bankruptcy?
Presumably this will be a fact issue based on where the money was on the date of filing. If it was in your checking account by the time of the filing, it will then be a fact issue as to how much you can exempt of that under the statute. It sounds like you might have filed this case without an attorney, and if so, I recommend you get legal counsel now.
I withdrew 20,000 from my 401K. Not realizing I couldn’t return the unused portion. I have 10,000 in my acct and I’m still making payments. I fail behind on mortgage payments and other Bill’s. So, I want file a Chapter 7. Will the 10,000 be an issue? It is still part of my retirement money.
The $10,000 is not part of your retirement money. Once you withdrew it from your 401k and put it in your checking, the designation changed. It’s just cash in your checking account now.
If you are asking whether you can keep all $10,000 in a Chapter 7, the answer is maybe. This will be a fact issue based on your bankruptcy exemptions and other assets. You might want to pay some of your mortgage debt with this or put some in an IRA, etc. Essentially, you really need to speak with a good attorney and find out what your options are with the cash, and potentially move the money to allowable sources before filing.
We have a chapter 13 bankruptcy that was filed solely in my husband’s name in Nov ‘17. In March ‘18 he was let go from his job. He finally found employment in Feb and we are in the process of confirming our payment modification. However, during the time my husband was unemployed, we cashed out his 401K to help pay our bills and basically survive. We did this without permission from the court, never realizing that we needed their permission. Never in a million years would we have knowingly done something we weren’t supposed to. I am concerned that when the court sees the cash out on our tax return, they will dismiss our case bc we didn’t seek their permission. I am mostly concerned with losing our house since it is protected in the chapter 13. What are your thoughts? Thank you.
Whether the court will approve this is probably district specific. However, the best approach right now is to probably bring it to the court’s attention by filing a motion to ratify the 401k withdrawal. Keep in mind that if you cannot afford to make your monthly payments based on your lack of income, most likely before even thinking of dipping into savings, you should look at either dismissing, converting to ch. 7, or staying in ch. 13 and requesting the court allow you to miss a few plan payments. It is specific to your facts as to what is the best approach among those.
We just filed chapter 13 but got new medical bills and my wife did a hardship withdrawal of 1500.00 to pay them. Can we get in trouble for this?
First off, I’m not sure what you mean by “got new medical bills.” That does not clarify whether the medical bills were incurred before or after the case was filed. If they were incurred before, they are part of your pre-petition debts and will be paid along with your unsecured claims. Assuming however that they were incurred after the case was filed, you could potentially pay them out of pocket, or maybe still get them included in your unsecured debt that is paid out in the plan. If you have already paid them out of what you withdrew, then it sounds like the issues above would be moot.
More than likely, your court will require you to file a motion to ratify the 401k withdrawal that took place; however, this will be specific to your district and how your judges handle these kind of things.
I am in my 2nd year of chapter 13. Currently I have fell behind two months on my mortgage and one month behind on chapter 13 payments. To walk away from the home and rent would likely not be an option. A 401k withdrawal would be my other option. Correct me if I’m reading this wrong… I can use the withdrawal only for the mortgage if it’s in foreclosure? Not for the chap 13 payment. If I run into this problem again in another yr can I withdrawal again?
Your Chapter 13 plan is supposed to be funded by “regular monthly income,” so a 401k withdrawal is not a proper source for funding your plan. Therefore, your court will more than likely require you to file a motion to withdraw from your 401k to explain why you need to do so. It is entirely possible it will approve the withdrawal, but it will almost certainly require a motion and a hearing first.
I withdrew from my retirement without the courts permission (didn’t know I needed permission). Im in graduate school, reduced hours to complete school which is this year and then I’ll be back to normal. I’m using the money to pay for stuff, my rent, food and support my son. Taking this money out will increase my overall income for the year by maybe 30000(I took out 60000). No one will no I did this until taxes are filed. What is the worst/best case scenario? Dismissal of case?
I am going to presume from your question that this is for a Chapter 13. If so, the trustee may move to dismiss your case, while you may move to ratify the withdrawal. There are a whole assortment of issues beyond that, and I recommend discussing them with your attorney. For instance, if your income was so low, why are you in a Chapter 13, and should you convert to Chapter 7 or maybe just dismiss your case? The point is, your issues here go beyond the withdrawal and it would be prudent to immediately discuss this with your counsel.
I filed for Chapter 13 a few weeks ago. I am selling my house, have a buyer and I have already moved to a new apartment. I fell behind on paying the electric bill since I no longer live there, and I got a shut off notice today. I need the electric to be back on for the inspection and for the closing to go through. I withdrew $1000 as a general purpose loan from my 401k to pay the electric bill and then upon closing and receiving the profit, I will pay the loan back. I did not even consider if it was legal or not. Was this ok to do?
There are a whole slew of issues here. Selling the property while in Chapter 13 will require court approval, as will the 401k withdrawal. Additionally, the electric bill will need to be addressed. It sounds like you can probably consolidate all of these issues into one motion for the court to hear.
I live in Iowa, so hoping most laws are applicable. I want to file bankruptcy; currently waiting to do so as I am living in the home to be foreclosed but haven’t yet been served. Dragging my feet to buy myself more time. And also looking dor employment. I qualify for Ch. 7; I don’t want to keep the house and I’m not sure about my car not. Right now I’m unable to drive due to a couple OWIs. I have a retirement account that I can cash out or roll over. I’ve been unemployed since last Sept. I’ve been living off of my taxes more recently. I understand that creditors can liquidate your assets in any account that is over $1,000. If I chose to cash out the retirement, which after fees would be about $15k, and ask them to send me a check that I cash but keep the cash on hand are they able to find out about it? How? Even if I never make the info known to the bankruptcy lawyer (prior to filing)? The main reason I ask is because I need the money to pay for the bankruptcy and keep the utilities on until I have to move. So I’m trying to see if there’s a way around getting that money but without it being available to any of the creditors.
There are too many moving parts here to give you an entirely accurate answer, and you need to sit down with a bankruptcy attorney before making any withdrawal out of your retirement account. Knowing the exemptions you can use will be important in this analysis. One thing you will want to discuss with this attorney is whether you should just file the bankruptcy now prior to withdrawing the funds, and then possibly withdrawing the exempt funds after you file in order to live on at that point. That is quite possibly the better approach to withdrawing some or all of that money now and then delaying the bankruptcy filing. Good luck.
My company I worked for was bought and I had the option to withdraw my 401k or roll it over since their plan was terminate. I took the early withdraw and want to file chapter 7 bankruptcy. I am about 20,000 or more in debt. My current bills have suffered, so I am using it to get caught up. Would it damage the case if I filed after recieving my withdraw? If so, how long should I wait to file. Thank you
This question is not clear. I can’t understand if you have take any of the 401k money or not so far. Additionally, I’m unclear why you would take the money to pay off debt and then turn around and file. You certainly are going to have to go over the specifics with your attorney.
The general proposition is that since the 401k is exempt that if you were intending to file bankruptcy, you would want to do so prior to a 401k withdrawal. Once you withdraw the 401k funds and convert it to cash, it is now in a non-exempt source and thus subject to your allowable exemption amount. Therefore, generally speaking there aren’t a lot of reasons to withdraw from a 401k right before filing bankruptcy, although there can be in some limited circumstances.
Can one withdraw cash (not as a loan) from their 401k while still making payments on their Chapter 13 plan (not a 100% payback). Putting aside all the reasons that one should not take any amount of an early withdrawal. Is this a hard no or yes? If possible, would the courts need to know what the money is for in order to approve?
The income to fund your Chapter 13 repayment plan is supposed to come from “regular monthly income,” as opposed to being funded from savings, whether 401k or otherwise. Therefore, it would be technically improper to be funding your trustee payments out of savings in your checking account. The same concept goes to a 401k withdrawal used to fund your trustee payments.
Therefore, if you are going to want to withdraw from a 401k, whether for trustee payments or other expenses, your court will almost certainly require a motion explaining why you need to withdraw those funds.
While in Ch 13 What happens if I do not get the court approval to withdraw from my 401k? Is it really necessary to go through the motions if my retirement was exempt and the payment plan is based off of monthly income. Will my withdraw be held automatically?
I’m not sure what you mean by “will my withdraw be held automatically.” In theory, the 401k withdraw would go through even if the bankruptcy court were not notified since the company would not do anything different on their end. The issue I think you are getting at is what will happen with the bankruptcy court if you withdraw without seeking court approval first. The answer is besides your ongoing duty to report it, they will certainly be aware of it eventually, as it will show on your tax returns.
Ultimately, the court would either “ratify” the withdrawal even though it took place without court approval first, or dismiss your case for not following the letter of the law, or potentially keep the case active but require you to turn over some of the withdrawal proceeds. This will be very specific to your case.
Hi, my wife and I filed for chapter 7, we went for meeting 341 on March 8 2019, but case is like on hold because my wife has a car accident pending, sobtrustee dont know yet how much she getting, so we are not discharged yet. I owe 6k to my 401k, will be ok if I pay back the 6k, (money from a friend), then take a loan for $14k and pay my friend back his 6k and i keep 8k, i need for some home repais.
Your wife’s car accident claim is an “asset,” so it would not hold up your discharge in a ch. 7. It would hold up the closing out of your case due to its liquidation value to your creditors, but that is different than your discharge. You very well may be discharged while her injury case is pending.
As for the 401k withdrawal and/or loan repayment, as long as you are not spending “property of the estate” it is fine. The way you describe things is that you are not using property of the estate, so there should be no issues.
I am quitting my job but just started to do a bankruptcy. I haven’t made the first payment yet but if I quit I have a 401k loan. Can I cash it out and will it hurt my bankruptcy?
You didn’t state what chapter you are in. I’m assuming it’s Chapter 13. If so, you would almost certainly need court approval for this. However, the greater question is how do you plan to fund your Chapter 13 each month if you are unemployed?
We are in the process of paying our lawyer payments every week to file a chapter 7. I quit my job and have a new job. In July I will be able to take my 401k. Will I be able to with drawl it and use that money to catch up on my rent to avoid eviction, pay utilities to keep from being shut off and pay the lawyer the remainder off fees to file with the courts our chapter 7? The amount I’m with drawing is 5088 minus my remainder loan amount and the 20% penalty leaving me with getting about 3900 dollars.
I can’t know exactly from your question how much of that money would be for “contemporaneous services” and what would be for payment of a past due debt. The portion that is for payment of a back due debt would technically fall under the definition of a “preference,” and in theory at least subject to turnover from the recipient to the trustee. That being said, it appears as if the “preference” amount is very small and also made to keep you in your rental. Therefore, I would be surprised if what you are suggesting would be problematic.
I’m retired. I may have to file bankruptcy. I plan to keep my house and cars. My income will be social security and I have a 401k. After bankruptcy, can I withdraw money from the 401k to live on?
Your question isn’t clear which chapter you will be filing. Also, I’m not sure what you mean by “after bankruptcy.” Are you referring to after the filing of the case or after the discharge. Assuming you are referring to after the case is discharged and closed, there is certainly no issue with using your 401k. If you are referring to after the case has been filed but prior to discharge, a 401k withdrawal in a chapter 7 is largely a non-issue; however, a 401k withdrawal while actively involved in a chapter 13 will almost certainly require court approval first.
I am in the middle of my chapter 13 currently. How would the bankruptcy court even know if I withdrew from my 401K? Do they check my income tax returns? I have recently changed jobs and was considering closing my 401K account with my previous employer and using those funds to pay off my car loan which is not part of my chapter 13 plan.
Most likely your district has “rights and responsibilities” for chapter 13 debtors that you acknowledged reading at your trustee meeting, and they require you to seek court approval prior to a 401k withdrawal. Additionally, yes, you need to submit annual tax returns while in Chapter 13, so the trustee would be aware that way.
What you cite is potentially a reason to approve you withdrawing from a 401k while in chapter 13. However, just because you might be approved for the withdrawal does not mean that you do not need to ask first.
I filed for Chapter 7 in June. The 341 meeting was on July 18. I am currently waiting for my discharge. I lost my job in January this year. I still do not have a job. Can I withdraw $3000 from my IRA for living expenses?
Even though almost certainly your IRA is fully exempt, technically you should check to see if your trustee filed a “no distribution” report. If so, you can use all of your assets and can withdraw. If not, you need to see why the trustee is holding up your asset report, and if necessary, request abandonment of your IRA account so you can freely withdraw.
Thank you Mr. Bricks. Have a great day.
I met with a lawyer this week. Got the paperwork to file for chapter 7. While filling it out I realized I did not mention to him that I took money out of my 401k.6 month ago I lost my job. I received a severance pay and took money from my 401k. I was afraid I might run out of money while I am unemployed. I also receive unemployment and child support. So with my severance pay, unemployment and child support only my gross income for the past 6 month would qualify. But with the 401k I would be way over. The lawyers office doesn’t open until Tuesday, so I can’t ask anyone about this right now. Is it considered income ? Gross or net ? Should I wait to file ?
You should definitely discuss this with your lawyer. It appears as if with the 401k withdrawal, you might be testing at a “presumed abuse” to file now. If so, you and your lawyer should discuss whether it makes sense to file now or wait. If you want to file now, you should then discuss the likelihood that you can still get a chapter 7 discharge even if the presumption is against you due to the special circumstances of the 401k withdrawal.
If you are in a Chapter 13 and borrow a hardship from 401k and forgot to ask trustee what is gonna happen can he take the house
If you borrow from a 401k prior to seeking court permission, the most likely thing that would happen is the trustee would either seek dismissal of your case or file a motion for you to turn over part or all of the disbursement. You would then presumably respond by notifying the court why you sought the money and why you believe you should be able to keep some or all of it. The ch. 13 trustee will not attempt to take your house.
We didn’t get any money we did a 401 hardship which means you buy a house and it’s payed for no payment you pay a penalty we don’t wanna loss the house
I recommend that you consult with a local attorney. You need an attorney to look at all of the specifics about your case.
Hello and thank you for the information on this blog.
I am just over 1 year into a Chapter 13 plan that was confirmed last March. I was involuntarily separated from my employer back around the start of August. I had two paychecks from them after this and they paid the full amount for the Chapter 13 each time. I just recently started getting unemployment and half of it went to a child support DSO automatically. My mortgage, child support difference, insurance, and other bills were coming due and I was starting to panic. I had about $18,000 in a 401k with the former employer that they sent me some forms to determine what I wanted to do with it. I decided to cash it out in full with taxes withheld so I could have money in reserve to keep current while I looked for work. I did this without the court’s approval because I was unaware that I would need to do so. I just recently became employed this week with a comparable paying job to what I had before, so I should have no problem going forward, but I did have to make one payment to the trustee from my personal checking so far, and possibly a second until my lawyer can work out an income withholding order with my new employer. My question is, I have about little over $10,000 now from that distribution sitting in my savings. From what I’ve read, it sounds like I’ll have to ask my attorney to ‘ratify’ this with the court, and in addition, it sounds as if I’ll have to surrender that money. My question is, is this the case, and can I make the case that I know I’ll have to pay 10% in early withdrawal penalties come tax time for this, if I can be allowed to keep some of this money. As of now it’s the only cash reserves I have left. What are your thoughts on this?
Thank you for your time.
The answer will vary by district, and you certainly need to discuss this with your lawyer. In most districts you would need to file a motion to ratify the withdrawal and then argue/explain to the court all of the reasons you cited as to why you should be able to retain the entirety of the withdrawal.
Hi, I am contemplating Bankruptcy (Chap 7 or 13) and have about 7-8 years before I retire. With that said, I am paying $600 a month in my brother’s bills due to a disability. If I file Chapter 13, and get a p/t job (Uber, Amazon Flex) to pay his debt off faster, how will the trustee treat that?
This is going to be specific to your district and trustee. More importantly though, it will be specific to which chapter you file. It sounds like you are taking part of your monthly income to pay off someone else’s debts, which is reducing your monthly cash flow. Arguably, this is an allowed expenditure since it’s helping a disabled relative.
However, the implications will vary wildly based on which chapter you file. If it’s chapter 7, there is no repayment plan, so the only real issue is how this impacts the means test. It may not even matter based on your income. The implications are likely more relevant in a chapter 13, but there are so many variables here that there’s no way to accurately answer this. You will need to seek the help of a local attorney, and the ultimate answer will vary wildly based on a variety of personal factors.
Hi. I filed a ch7 2 years ago. I have 1 year remaining. I want to draw my entire 401k out it would be about $52,000.00
I wanted to pay off the remainder of my bankruptcy but I cannot because it has not been in effect for 36 months. I already checked. My question is if I drew my 401k out, would I need to report the money? Would I get into trouble for not reporting this to my trustee, and what would happen?
You stated this is a ch. 7 filing, but from the appearances of your question, I believe you meant you are in a Ch. 13 case. The answer to this question is very district and fact specific. Most likely you will need to file a motion to withdraw the funds and seek court approval before withdrawing. Also, it’s not entirely clear if this will complete your bankruptcy or not, because it will depend on the amount of your unsecured pool, among other things. Additionally, it may be advisable to do other things instead like seek a motion to suspend plan payments, convert to ch. 7 or dismiss your case. You need to seek out a qualified attorney and make sure this approach even makes sense based on the facts of your situation.
Hi. I’m in the process of filing for chapter 7 bankruptcy. I want to take 1000.00 from my 401k to pay for my rent before filing. Would that affect me in the bankruptcy process.
That should not be an issue in the bankruptcy process. You are simply taking money from your left hand and transferring it to your right hand.
Is qualifying for the means test for Ch.7 based only on the past 6 months. I currently qualify, but realize I received a 401k hardship withdrawal early last year. So when I file my taxes and include the 1099-R as income, my annual income for 2019 will be over the median income. Can that disqualify me even though it’s over 6 months ago?
Technically yes, the means test only looks back at your past six months of income and determines numerically if you pass or flunk the means test. However, note that this is only a numerical determination that creates a presumption. It is a rebuttable presumption. Therefore, if the income you have received in the past six months is not necessarily reflective of the income you can expect moving forward, you can argue against the presumption- essentially that the totality of your circumstances favor you getting a discharge. The other alternative is to wait to file beyond that window and then file once the presumption is in your favor.
What can happen if I am in Chapter 13 bankruptcy & without knowing i would have to get it approved through the court, made withdrawal(s) or taken out loans from my 401-K? I feel like the most irresponsible person in the world for not doing my homework prior to withdrawing funds,but even more so frightened of the consequences of my actions.
This could vary by district and judge, but most likely you will need to file a motion to ratify the withdrawal and offer an explanation of why you had to do it. If there is a good enough reason, the judge will likely approve it.
I filed for CH.7 in 4/20. My 341 meeting is in 5/21, am I able to withdrawal from my 401k? It’s only 1900 that I have in there. I’m in need of money to help out my parents due to the pandemic that is going on.
Since your 401k is an exempt asset, there should be no problem in withdrawing money from it in a Ch. 7 after you filed the bankruptcy.
I filed Chapter 7 8/1/2020…can I borrow from my 401k to pay off my car loan since I will be keeping the car?
A 401k is an exempt asset, so there is nothing per se impermissible about withdrawing from it during your Ch. 7 case- even while it’s in the infancy stage. However, there are a variety of issues that could emerge and are worth considering prior to withdrawing. This is in addition to the general philosophy of not withdrawing from a 401k outside of bankruptcy issues. This list includes, but is not limited to:
1. If your Ch. 7 needs to or gets dismissed for some reason, you now potentially have converted those funds to a non-exempt asset. This could be problematic if you need to re-file a ch. 7.
2. If you convert to Ch. 13 for some reason, this 401k withdrawal can impact your payment plan and cause it to increase.
3. You might find it advisable to either surrender your car, or keep your car through a redemption loan, instead of withdrawing from a 401k to pay it off- particularly if the car has negative equity.
In other words, you really need to sit down with a good attorney and discuss your exact facts to get a good informed opinion as to what makes sense for you.
Hi, I have just over a year and a half left in chapter 13. Without knowing it was wrong to withdraw money from my 401k without asking. Only thing is I wanted to take money out to pay off chapter 13… will I get in trouble for withdrawing?
This will depend by district as well as possibly whether you are in a 100% plan, but most likely you will need to make the court aware of this by filing a motion to ratify the withdrawal. The judge will probably grant your motion.
Hi, As a result of the current pandemic, my employer will allow us to take a withdrawal from our 401k plans. I have a mold issue in my home plus I have a financial obligation that effects a family members credit. That debit is $4,000 and I want to pay it off plus get an estimate from a someone to take care of a mold issue in my home as well as replace my stove and fridge. Do I have to get permission from the trustee enlight of the pandemic?
The process for 401k withdrawals during a chapter 13 is always district specific so check your local court’s procedure, but more than likely you will need to file a motion to withdraw from your 401k whereby you explain the necessity of your situation.
I have completed all payments for ch 13 about 6 weeks ago but have not received final discharge. My attorney says it could take another 2 months. I have money in an IRA I want to use to buy a car. I’m told I should not withdraw money until discharge is final. But how would any creditors or trustee if I took money out of my IRA if it was not a loan?
In theory it would not run afoul of the Chapter 13 to make this withdrawal given where you claim to stand with the plan. That being said, it’s possible this would be problematic, particularly if your plan was less than a 100% dividend to your unsecured creditors. So whether this is even permissible or wise to do would be fact specific, and your need to run this by your attorney.
I am currently in 3rd year of Chapter 13 with 1 year remaining of payments. I was recently diagnosed with breast cancer and and about to undergo bilateral mastectomy in June with no income other than unemployment. I am confused on path that i should take considering i may be off work for a year. Also noted that all remaining debt is Unsecured (24,000) and an cram down vehicle (13,600) which i would have to surrender if converted to Chapter 7. Should I consider following:
1)Request Hardship Dissmal (but concerned about the remaining debtors on credit report)
2)Chapter 7 (not really wanting to turn in vehicle only means if transportation for medical appointments)
3)file motion to suspend payments for Four months ( so that i can qualify for chapter 7 and income from past 6 months not as high payments to chapter13 is 1806 monthly)
4) Request hardship loan from 401k to pay off entire balance( concerned about would they take entire amount of monies received from retirement for medical and home incare adjustments needed as well as home repairs.
Thank you so Much Please advise
I’m sorry to hear about your situation. This is definitely a case where the options are not crystal clear and require a deep dive into the entirety of your situation. I strongly suggest that you run this by an attorney. For example, perhaps vehicle redemption in ch. 7 is an option for you, and would increase the desire to convert to Chapter 7. This will be specific based on your income, what kind of car you want, what your current vehicle is worth, etc… Another option is to try to stay in Chapter 13, and request an extension of your plan length due to Covid-19. Beyond that, you have correctly noted that you could request a 401k withdrawal or just a general motion to suspend plan payments. Overall though, you need legal advice specific to your situation, as well as to know the general policies of your assigned trustee and judge.
I am going to file chapter 7 (haven’t filed yet) would like to pull out from 401k for a deposit on apartment, and to purchase a car since mine will be included in bankruptcy. Going through a separation so will also need it to purchase items for apartment such as plates, bed, etc. is this something I can do?
There is nothing explicitly disallowed regarding the strategy you propose. However, by withdrawing from the 401k prior to the bankruptcy being filed, you arguably have created additional income for purposes of the means test. You also have moved assets from an exempt nature (401k) to a liquid nature that is potentially non-exempt. Therefore it will be fact specific depending on the amount of the withdrawal and the district to determine if this ultimately will be a big issue in your case and if it’s something you want to steer clear of. You need to discuss this strategy with a good attorney prior to making the withdrawals.
I’m in chapter 13 right now and need to do a 401 k withdrawal to have my transmission fixed in my truck. This is my only vehicle and can’t wait around to long. How long should it take for the trustee to determine weather I can do this?
This will be district specific. In theory it could be done by an emergency motion, or even by a ratification motion after the fact, but this will heavily depend on the specifics of your district and your judge.
Hello, my question is this… Under the cares act am I able to withdraw my 401K without penalty because of hardship from being furloughed while in a chapter 13 and not get permission or be trouble with court?
Your district might allow you to modify your plan to extend your payment plan up to 84 months if your hardship is related to Covid, but this will depend on your district and your facts. You need to discuss your options with a good local attorney. Also, and potentially more importantly, you need to determine if you even want to stay in Ch. 13 given your work status. You may want to dismiss your case or convert to Ch. 7. This is why you need to sit down with a good attorney and discuss your individual facts.