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Roger
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 31688
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by Thompson-Reuters
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We have started the process in filing a chapter 7.. However

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We have started the process in filing a chapter 7.. However we are currently behind on our rent and many utility bills. I have a 401k that I was looking into taking a loan out to get caught up on but will this effect the chapter 7?

Roger :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy litigation attorney. Thanks for your question. I'll be glad to assist.

Roger :

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.

Roger :

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.

Roger :

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.

Customer:

So it won't be.like we are hiding funds? We informed the attorney of my 401k

Roger :

No, it would not.

Roger :

As long as you inform your attorney, you should be ok.

Roger :

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.

Roger :

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.

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