QUESTION
Can I claim the 401k loan in my bankruptcy?
Asked on Dec 09th, 2014 on Bankruptcy - Colorado
11 ANSWERS
Yes, but your 401(k) will be offset.
Answered on Dec 11th, 2014 at 3:26 PM
Debt Settlement Attorney serving San Diego, CA
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Law Offices of Kathryn Tokarska
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You cannot discharge a 401k loan. It is a debt you owe to yourself. If you separate from your employer and the loan is not paid off, there can be tax consequences for early withdrawal.
Answered on Dec 11th, 2014 at 2:59 PM
Commercial & Bankruptcy Law Attorney serving Powell, OH
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Ronald K. Nims
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You're required to list all debts in your bankruptcy schedules but 401(k) loans are not dischargeble in bankruptcy.
Answered on Dec 11th, 2014 at 6:08 AM
William Rhymer
If you mean discharge it, generally not. There are special Federal Laws that treat 401k loans different than ordinary loans. Some times you can stop paying it and the 401k administrator will payoff the loan from your 401k. You would have to pay taxes on the amount used to pay off the loan.
Answered on Dec 10th, 2014 at 6:38 PM
It is money you owe to yourself. You will still have to pay taxes on the withdrawal. My practice is to list the debt but then continue to repay it and to include the payments in the budget.
Answered on Dec 10th, 2014 at 6:37 PM
Probate Attorney serving Friendswood, TX
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Law Office of Melissa A. Botting
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The short answer is - you cannot be discharged of a 401K loan in a chapter 7. The loan is secured by your 401K. Secured debts are either reaffirmed (paid according to the contract), paid the fair market value of the collateral ( in this the cash) or surrendered. If you wish to cash in your 401K to stop making the payments, you will be assessed applicable early withdrawal penalties.
Answered on Dec 10th, 2014 at 6:36 PM
Deborah F. Bowinski
Chances are that if you are still employed by the company that your 401K is through, you will be required to continue to repay the loan by way of payroll deductions. If you no longer work for the same company then you are still expected to repay the loan, but if you don't then it will be treated and taxed as an early retirement account distribution. Be careful that you understand the penalty and tax consequences involved.
Answered on Dec 10th, 2014 at 6:35 PM
You are probably the creditor on a 401k loan, so if you don't repay it, you will have to pay taxes on the loan and possibly a penalty. Talk to your retirement account administrator about your options.
Answered on Dec 09th, 2014 at 9:47 PM
Bankruptcy Attorney serving Seattle, WA
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The Law Office of Marc S. Stern
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401(k) loans are non-dischargeable. That is important to you because if they were discharged, you would income. If you do not pay a 401(k) loan, the amount is taxable to you.
Answered on Dec 09th, 2014 at 9:45 PM
Derek W. Freeman
Do you mean, "Can my 401k loan be discharged in a chapter 7 bankruptcy?" If that's what you mean, then the answer is no, it cannot. Your 401k loan is borrowed against money that is yours. You will have to continue to have payments taken out of your paycheck until the loan amount is paid off. In a chapter 13, usually 401k loan payments continue to be taken out of your paycheck until paid off, at which time your chapter 13 payments increase by the same amount. There's usually no way around paying off your 401k loan, unless you get fired or quit your job.
Answered on Dec 09th, 2014 at 9:44 PM
Debt Settlement Attorney serving Chicago, IL
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Law Offices of Daniel J. Winter
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The short answer is no. This is a required loan to pay. You are essentially paying your retirement plan back. If you stop paying on the 401k loan, you will be in default, and your 401k would probably have to be cashed, with penalties, to take care of it. Then, you'll be taxed on whatever isn't paid back. Before stopping your payments or cashing your 401k, you should talk to an accountant. And, if you have other debts as well, you should call a bankruptcy lawyer asap.
Answered on Dec 09th, 2014 at 9:44 PM