OK, that's a different issue. Bankruptcy
courts around the country have been divided over whether a Ch 13 bankruptcy filer can continue to make payroll contributions to a retirement plan during the Chapter 13 repayment period. In a recent case, the Bankruptcy Appellate Panel of the 9th
Circuit ruled that Chapter 13 debtors cannot continue such voluntary contributions during Chapter 13 bankruptcy. In re Parks
, No. 11-1366 (9th
Cir. BAP, Aug. 6, 2012).
So, if you do file a Ch 13 bankruptcy - you won't be able to continue with your 401K plan but the monies you had been placing therein would be considered part of your gross income.
An individual may be able to withdraw from his/her 401K if he/she has filed for Chapter 13 Bankruptcy if the 401K is fully exempted from the bankruptcy and the individual is not borrowing any money.
An individual may not take a loan on his/her 401K if he/she files for Chapter 13 Bankruptcy. If he/she has to take a loan, then he/she may need the approval of the court to do so. In the case of Ch 7
Bankruptcy, the bankruptcy case would be only for 90 days and the individual would still need the court’s approval to take a loan on the 401K.
An individual may be able to cash out his/her 401K in a chapter 13 bankruptcy. However, the money that the individual gets from the 401K will be used by the bankruptcy trustee to repay all the individual’s creditors.