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WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17223
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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We are 2 years and 8 months into a 5 year Chapter 13 plan.

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We are 2 years and 8 months into a 5 year Chapter 13 plan. We barely make it each month and have a lot of money in our 401k. Can we take a loan on our 401k. We had a loan when we started the Chapter 13 and have paid it way down. Right now we have car repairs that need to be done and just general day to day expenses. The only time we have went to our trustee to ask for money was when our car was totaled and it took a month for him to tell us (1) that we could use the money from the totaled car and (2) take a 401k loan to help us get another one.

The questions are - can we take money from 401k without permission from the trustee and what happens at this point if he does find out?

WALLSTREETESQ :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on.

WALLSTREETESQ :

How much will you take out?

Customer:

around $20,000 after the current loan is paid off

WALLSTREETESQ :

How many more payments do you have left? What is the total balance?

Customer:

I am looking

Customer:

2 years and 4 months. we pay $1,870 per month.

WALLSTREETESQ :

How much do you have in your 401k?

Customer:

around 50k. We currently have a loan for 8k that has to be paid off first. Once that is paid off we can take out $30k

WALLSTREETESQ :

The issue here is complicated:

WALLSTREETESQ :

Under the Bankruptcy code: you have to obtain permission from the Trustee when you are obtaining a loan,

WALLSTREETESQ :

That is the law:

WALLSTREETESQ :

However, in many cases since your loan is from your exempt 401k, the trustee in mosts cases will allow it, especially if you have a valid reason for the use.

WALLSTREETESQ :

The worst that can happen is that the trustee asks that the money taken be put into the plan, or files a motion to dismiss.

WALLSTREETESQ :

Once you remove the exempt amounts, it becomes part of the bankruptcy estate.

Customer:

I guess that is what we were most worried about - getting it dismissed at this point.

Customer:

our attorney had told us that our monthly payment would be no more than $1500 per month and then it was 1870. it is our own fault = thanks for your answer.

WALLSTREETESQ :

In your situation, if you need the money, I would try to obtain permission if it is not given consider having the chapter 13 dismissed, and use the money for what you need, and refile another chapter 13, this way you would have a new 5 year plan with lower payments.

WALLSTREETESQ :

The payments would be lower since some of the debts were already paid.

WALLSTREETESQ and 2 other Bankruptcy Law Specialists are ready to help you