QUESTION
Can I pull $5000 out of my 401k to buy a cash car before filing bankruptcy?
Asked on Jul 22nd, 2013 on Bankruptcy - Arizona
More details to this question:
I need to file chapter 7 bankruptcy because I lost my job about a year ago. I’m about a month behind on my car payment and need a means of transportation. I haven’t filed yet though I will be as soon as I choose a lawyer. I’m worried about my car getting repossessed before or during my bankruptcy and not having a way to get around.
10 ANSWERS
Bankruptcy Attorney serving Phoenix, AZ
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Law Office of D. L. Drain, P.A.
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As to the car it depends on the exemptions in the state where you live. In Arizona the exemption allowance is currently $5,000, but will change to $6,000 on September 14th. Please understand that bankruptcy is a very complicated process. It is wise to talk to an experienced bankruptcy attorney before deciding to take this important step.
Answered on Jul 27th, 2013 at 4:56 PM
Complex Litigation Attorney serving Costa Mesa, CA
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Thomas Vogele & Associates, APC
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You should categorically not take money out of your 401k that is exempt in bankruptcy, to buy a car that is subject to a limit on the amount that can be exempted. If you file bankruptcy, you should wait until your old car is repossessed and then buy an inexpensive replacement vehicle. If you can avoid using your 401k funds do so because once that money is out of the 401k it is very hard to put it back. Before you take any steps, consult with a bankruptcy attorney. Most will give you a free consultation.
Answered on Jul 27th, 2013 at 4:56 PM
Yes, you can buy a car with cash before you file Chapter 7. However, be careful about how much you spend. You don't want to buy a car that is worth enough for the Chapter 7 Trustee to liquidate it. The federal exemption (which you can use in Oregon now) for an automobile is $3,675. So, if you buy a car that is worth $5,000, it will have $1,325 of non-exempt value, and you might have to pay the Trustee $1,325 to keep the vehicle.
Answered on Jul 27th, 2013 at 4:56 PM
General Law Attorney serving Cherry Hill, NJ
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Mark S. Cherry, Attorney at Law, PC
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The 401k is exempt but the trustee may have a claim against the car if your exemptions are not used up. It would be better to do that after your bankruptcy.
Answered on Jul 27th, 2013 at 4:56 PM
It is very unlikely that your car would be repossessed while your Chapter 7 was open, since the lender has to file a motion to lift the stay and obtain an order from the court before they can repo your vehicle. That process takes at least 8 weeks, your bankruptcy should be over in 12 weeks, so unless the motion was filed within days of you filing your bankruptcy (and why would the creditor pay legal fees to get the car back 4 weeks earlier), so I would suggest waiting until after the bankruptcy is completed to do this. However, you can do this if you like.
Answered on Jul 27th, 2013 at 4:56 PM
Real Estate Attorney serving Potomac, MD
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Shulman Rogers, P.A.
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You should be fine if you go that route. However, please be mindful that there are tax consequences to cashing out a 401k.
Answered on Jul 27th, 2013 at 4:56 PM
Personal Injury Attorney serving Glendale, CA
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JT Legal Group
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Honestly, just find a lawyer first and have him/her help you in this decision process. There are too many unknowns for me to give you a good answer so why would I say something which ends up costing you $?
Answered on Jul 27th, 2013 at 4:56 PM
Bankruptcy Attorney serving Florissant, MO
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Law Offices of Thomas Corcoran Phipps
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You can keep a car worth $3,000. If it is worth more, the trustee may make you pay the difference to be distributed to creditors.
Answered on Jul 27th, 2013 at 4:56 PM
Bankruptcy Attorney serving Plantation, FL
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Moffa & Breuer, PLLC
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File before you purchase the vehicle.
Answered on Jul 27th, 2013 at 4:56 PM
Bankruptcy Attorney serving Livonia, MI
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Charles J. Schneider, P.C.
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Yes but I would not do it prior to filing but immediately after filing.
Answered on Jul 27th, 2013 at 4:56 PM