Is a 401k loan exempt under chapter 13 bankruptcy? 10 Answers as of February 25, 2015

I took out a 401k loan while I am in Chapter 13 bankruptcy without the court's permission because I thought I was able to do that because the 401k's were exempt. I'm getting contradicting information. I have been paying on it outside the plan and we are going to our attorney's because it's appears we have excess income according to our tax returns? Can this cause an immediate dismissal? Any advice?

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Ronald K. Nims LLC | Ronald K. Nims
Remember that bit in your plan where it said "Debtor shall not incur any non-emergency consumer debt without trustee and/or Court approval." There isn't any exception for 401(k) loans. The court can certainly dismiss your chapter 13 plan because you failed to comply with the provisions of the plan. By itself, obtaining an unauthorized loan isn't a guarantee that the court will dismiss your chapter 13. The issue is whether your actions are big enough to affect the rest of the plan. Did you blow $50,000 on luxuries and now are paying $1,000 a month which is income that you were concealing; expect you plan to be dismissed. Did you blow $2,000 of a 401(k) loan on a family vacation and your paying $20 a month to repay the plan; not likely to get your plan dismissed. Another issue is whether you have one offense or a string of them, it would seem that you've concealed some income and now you've taken an unauthorized loan. If you've committed multiple offenses at some point the judge will cease to consider you an honest debtor who messed up accidentally and start to consider you a dirtbag.
Answer Applies to: Ohio
Replied: 2/25/2015
A Fresh Start
A Fresh Start | Dorothy G Bunce
You are not allowed to borrow any significant amount of money while in a Chapter 13 because it reduces the amount you have available to pay other creditors. The fact that this asset is exempt is irrelevant because you have to pay the money back or quit your job. Nothing will happen to you immediately, but you can expect your Trustee to ask that you pony up more money in your plan payments.
Answer Applies to: Nevada
Replied: 2/24/2015
Usually repay of a 401k loan are directly from the earnings and shown on the payment advice slips. If that is not the case your attorney can amend Schedule J to show these repayments. That will decrease your disposable income.? You should direct your questions to your attorney.
Answer Applies to: Minnesota
Replied: 2/24/2015
Idaho Bankruptcy Law | Paul Ross
A 401K loan is not a loan for bankruptcy purposes (in Idaho). It is a loan against your own retirement account. It is paid by you (typically through an employer), not by the Trustee. If your taxes show too much additional income, it is grounds for the Trustee to do a modification for more to be paid through the Ch 13, rather than dismissal.
Answer Applies to: Idaho
Replied: 2/24/2015
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
Court permission is required to take out a loan, any loan over a certain amount. The trustee does have the right to file a motion to adjust the plan payment based on additional income (I have never seen this in my area, but you never know what could happen). Filings are down and the trustee may have a little time on their hands. Cooperate with your lawyer and come clean with the court.
Answer Applies to: California
Replied: 2/24/2015
    Goldsmith & Guymon
    Goldsmith & Guymon | Marjorie Guymon
    When you pull out money from a 401k it counts as income if it is not a loan. If it is a loan that means you have to pay it back so it is not counted as income. You need to provide your attorney with the details of the loan. The problem you have created is that you clearly have excess disposable income if you are able to pay on your loan in addition to making plan payments.
    Answer Applies to: Nevada
    Replied: 2/24/2015
    The Law Office of M Grater LLC
    The Law Office of M Grater LLC | Mark O. Grater
    The 401 K loan counts as one of the expenses in a Chapter 13 bankruptcy. The account itself is exempt.
    Answer Applies to: Connecticut
    Replied: 2/24/2015
    Richard B. Jacobson & Associates, LLC | Richard B. Jacobson
    I'm confused as to why you are contacting us. You have a lawyer in your Ch. 13, and no doubt you are paying him or her good money to answer questions such as this, and to resolve any difficulties which may arise. Discuss all the facts with your lawyer. I can tell you that in general the 'pot o' gold' in a 401(k) is beyond the reach of creditors. Each Trustee will have his or her attitude, however, towards your taking a loan without getting prior permission which is often granted. The problem is that at last in theory all your income should be available for the Plan not just what you designated as Plan payments. So if you are taking income from outside the Plan to pay a new loan, it detracts from what you said you had available to pay your regular bills and expenses back at the beginning of the case. And if you have extra income, the Trustee will likely want it. However, this problem may prove to be more illusory than real. Talk to your lawyer. Good Luck.
    Answer Applies to: Wisconsin
    Replied: 2/24/2015
    Stephens Gourley & Bywater | David A. Stephens
    401k's are exempt assets, but you are not supposed to incur new debt during a chapter 13 without the approval of the Trustee, and possibly the court. It is grounds for dismissal, but dismissal is not likely.
    Answer Applies to: Nevada
    Replied: 2/24/2015
    Musilli Brennan Associates PLLC
    Musilli Brennan Associates PLLC | John F Brennan
    The only correct advise is to go to your counsel who knows the case.
    Answer Applies to: Michigan
    Replied: 2/24/2015
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