Can I take the 401K refund without losing it to the bankruptcy? 10 Answers as of January 10, 2014I would like to take a refund of my 401k when I leave my job next month to move out of state. My husband only is under Chapter 13 Bankruptcy. I did not file. Can I take the 401K refund without losing it to the bankruptcy, to assist with moving expenses? I am fully aware of the tax penalties.
David R. Fondren, Attorney at Law | David R. Fondren
A refund??? Who took if from you to refund it back? If you are not in bankruptcy, assets that are in your name alone are not part of the estate. You can do what you wish. However, There is a significant penalty for early withdrawal and you have to pay taxes on top of that. Use that as a last resort and try to find other ways to move. Or save up your money until you can afford to move.
Answer Applies to: Missouri
Rhymer Law Firm | William Rhymer
From the information you supplied, as long as you are not in any type of bankruptcy yourself, it should not be a problem. Out of abundance of caution, you may want to keep it separate from your husband's money. Merry Christmas!
Answer Applies to: Georgia
Law Office of Mark B. French | Mark B. French
Your inquiry describes a 401(k) "refund", but I suspect you really mean a "withdrawal" or "loan". Your question does not specify what state you are in, but if I had filed your case then I would be comfortable with you withdrawing or borrowing funds from your 401(k). Even if you were a Debtor, the funds in the 401(k) are not part of your estate pursuant to Section 541(a)(7) of the Bankruptcy Code. Thus they would not be part of the estate in your husband's case. However, that does not answer whether your Trustee might consider the funds as "income". Here I am comfortable that they would not, but you should consult with your Trustee to determine their position.
Answer Applies to: Texas
Law Office of Lynnmarie A. Johnson | Lynnmarie Johnson
Generally not a good idea. Even though you are not filing, all disposable income from the household has to go to your husband's debt. You are taking an exempt asset and making it non-exempt and the trustee may very well go after it as disposable household income. Talk to your attorney and see what the local trustee generally does.
Answer Applies to: Michigan
Garner Law Office | Daniel Garner
Since you acknowledge that you would have to pay taxes on the 401K withdrawal, the only exposure you may have to the Chapter 13 trustee is if you and your husband file income tax returns jointly. A Chapter 13 normally requires the debtor to provide a copy of all tax returns to the trustee every year. If your 401K is shown on the joint tax return, it would just require an explanation. And if you do file taxes jointly, you must be sure to pay the taxes on the withdrawal or the IRS will consider the tax debt a joint liability, which could upset your husband's Chapter 13 plan. You should review the current Chapter 13 plan as filed in your husband's case to make sure there is no extra language added to the plan which may be construed to commit such extra income to the plan. The great benefit of Chapter 13 bankruptcy is the flexibility it allows to address unique circumstances. But with such flexibility comes the possibility of committing income to the plan which would normally not be obligated to the trustee.
Answer Applies to: Oregon