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cfortunato
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Category: Bankruptcy Law
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Experience:  Bankruptcy professor.
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What if Bankruptcy hearing goes bad and you are requested to

Resolved Question:

What if Bankruptcy hearing goes bad and you are requested to pay back to the court your 401K money to pay your creditors?

Is this final or can we negociate any thing with the court? We will be left with absolutly no money if this happens.
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 3 years ago.

Hi JACustomer,

Why is the Bankruptcy court entitled to your 401K money, which is normally exempt property?



Edited by cfortunato on 1/1/2011 at 3:29 PM EST
Customer: replied 3 years ago.

I had closed my 401K account to pay my mother back before the filling. The court seems to have looked at this like we were crooks, how we felt. So many things were done like don't worry this is a slam dunk. We were to understand that our 401K was exempt now we find that this is not true after it took place.

Expert:  cfortunato replied 3 years ago.

Once money is taken out of a retirement account, it is no longer exempt.

However, if the money was given to your mother, how is it that taking it back from your mother to pay your other creditors will result in your being "left with absolutely no money"? Isn't it actually your mother who will be left with no money?



Edited by cfortunato on 1/1/2011 at 3:39 PM EST
Customer: replied 3 years ago.

Sorry, that is correct, The amount is $44,000 dollars. This is made up of my severance pay in June of $17,000 and the balance is my 401K.

Expert:  cfortunato replied 3 years ago.

Once money is taken out of a 401K plan, it is no longer exempt. That is the reason the court was able to take the money back, treating it as a preferential transfer.

You can file a motion to dismiss the case. This motion may and may not be granted, but there is usually the opportunity to reach a settlement agreement in the midst of the motion, allowing the debtor to pay less (often half).

 

 



Edited by cfortunato on 1/1/2011 at 4:06 PM EST
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
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