Attorney At Law | Harry D. Roth
So long as you exempted the property in your schedules, yes, you can do that. Being in bankruptcy does not save you from the penalties or taxes for the early withdrawal from a 401(k). There are a few things for which you can withdraw from a 401(k) and not be penalized; this is not one of them. That said, while it is permissible to do this, that does not make it smart. If you can't make your payments from your regular income, something is wrong and maybe that something is being in a chapter 13 at all. Stop and smell the roses and ask yourself why you are in a 13, what it is costing you and whether it is worth it in the end. If you can't answer those questions, you are probably in the wrong chapter or maybe should not be in bankruptcy at all.
Answer Applies to: California
Olson Law Firm | Edward M Olson
It is legal. However, I do not recommend it. Withdrawing funds from a retirement account will almost always have tax consequences. In addition, you are using exempt assets to pay unsecured creditors. If you can make the plan payments with your ordinary income, you should. If you cannot make the payments on your current income, then you need to speak with your bankruptcy attorney as soon as possible. The judge has the power to dismiss your case if you miss even one payment under the plan.
Answer Applies to: Michigan
R. Jason de Groot, P.A | R. Jason de Groot
That is not a good idea. First of all you pay taxes and penalties on early withdrawal from a 401K. Second, you are taking an exempt asset and turning it into a non exempt asset. Third, you are spending something that you have saved for retirement. The point of exempting the retirement moneys is completely defeated. Chapter 13 is for people who have regular income, and who can pay a portion of the debt they owe. You should be paying the trustee out of the regular income you make, not out of an exempt asset.
Answer Applies to: Florida