Can I use 401k to pay the trustee under Chapter 13? 15 Answers as of June 14, 2012

Can I use 401k to pay the trustee under Chapter 13? I was wondering if I can withdraw and make payments using 401k.

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Marc S. Stern
Marc S. Stern | Marc S. Stern
Yes you can but you will incur substantial tax liability if you are not above retirement age.
Answer Applies to: Washington
Replied: 6/14/2012
Debt Relief Law Center | Roger J. Bus
Some Trustees do not Object to that practice.
Answer Applies to: Michigan
Replied: 6/7/2012
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
Replied: 5/18/2012
Bankruptcy Law office of Bill Rubendall
Bankruptcy Law office of Bill Rubendall | William M. Rubendall
Check with the chapter 13 trustee to see whether this can be authorized.
Answer Applies to: California
Replied: 5/18/2012
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
Replied: 5/18/2012
    Law Office of Michael Johnson
    Law Office of Michael Johnson | Michael Johnson
    Yes. But it is not recommended.
    Answer Applies to: Florida
    Replied: 5/18/2012
    The Law Offices of Kristy Qiu
    The Law Offices of Kristy Qiu | Mengjun Qiu
    Yes you can use 401k.
    Answer Applies to: Florida
    Replied: 5/18/2012
    Law Office of Pho Ethan Tran PLLC
    Law Office of Pho Ethan Tran PLLC | Pho Ethan Tran
    Your 401K is exempt from the bankruptcy estate and should not be withdrawn to make payments.
    Answer Applies to: Texas
    Replied: 5/17/2012
    The Law Office of Darren Aronow, PC
    The Law Office of Darren Aronow, PC | Darren Aronow
    You would have to file a motion to get court permission to do so, because you are taking a loan which will come out of your paycheck and reduce your net weekly income.
    Answer Applies to: New York
    Replied: 5/17/2012
    Alvin Lundgren | Alvin Lundgren
    You will have to pay stiff penalties for withdrawing from your 4014(k). Talk to your attorney about modifying your plan.
    Answer Applies to: Utah
    Replied: 5/17/2012
    R. Jason de Groot, P.A
    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
    Replied: 5/17/2012
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