Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
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If you borrow from your 401k loan, you're literally borrowing from yourself. Thus, 401k loans are not considered to be real loans and are not affected by bankruptcy.
If you are unable to repay the loan, it will be automatically seen as a withdrawal from your retirement account and you will be taxed accordingly and you will be charged an additional 10% of the unpaid amount as penalty if you are less than 59 ½ years of age.
In a chapter 7 case, 401(k) loan repayments aren’t supposed to be counted on the means test, so it shouldn't impact you there either.
So it won't be.like we are hiding funds? We informed the attorney of my 401k
No, it would not.
As long as you inform your attorney, you should be ok.
As I said, in a Chapter 7 filing, the means test expense calculation does not include a 401k loan. The fact that you cannot list the loan as an expense COULD increase your risk to pass the means test, but it's unlikely if you're not borrowing a large amount of money.
You should consult your bankruptcy attorney BEFORE borrowing the sum and allow him to do a quick calculation to make sure you're still under the means test radar.