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Bankruptcy and 401K Questions

401k nest egg atop bills

Filing for bankruptcy often is not easy for individuals. A lot of aspects in the financial area may need to be taken care of while filing. It can be confusing about which assets are affected and what assets may be safe. Knowing how it can affect one’s retirement plans and 401K can give a little bit of relief to individuals. Read below where Experts have answered questions for others regarding bankruptcy and 401K.

How would a Bankruptcy Petition affect an Individual’s 401K?

As per the Federal Bankruptcy Law, an amount of up to $1 million from an individual’s 401K may be exempt from bankruptcy. However, an individual could face problems with the bankruptcy court if he/she puts a considerable amount of his/her assets in a 401K to make them exempt in the bankruptcy petition. If the individual does not move most of his/her assets into the 401K within 6-12 months prior to filing for bankruptcy, his/her 401K would in most cases, be exempt from the bankruptcy filing.

Can an Individual Withdraw from a 401K when he/she has filed for a Chapter 13 Bankruptcy?

This is possible if the 401K is fully exempted from the bankruptcy and the individual is not borrowing any money.

Should an Individual give his/her 401K Information when filing for bankruptcy?

An individual may include his 401K information on Schedule B of the bankruptcy petition and also on Schedule C of the petition.

Can an Individual take a loan on his/her 401K when he/she files for bankruptcy?

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 Chapter 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.

Can an individual, cash out his/her 401K in Chapter 13 Bankruptcy?

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.

Can an individual avoid repaying a loan on a 401K in a Chapter 7 Bankruptcy?

401K loans may not be considered as debts in a Chapter 7 Bankruptcy. Hence, an individual cannot avoid repaying an unpaid 401K loan if he/she files for a Chapter 7 Bankruptcy. He/she may have to repay the unpaid 401K loan.

Can an individual make contributions to his/her 401K Plan after he/she files for a Chapter 13 Bankruptcy?

An individual may not be allowed to make any contributions to his/her 401K plan after he/she files for a Chapter 13 Bankruptcy.

Can an individual access his/her 401K fund if his/her employer is filing for a bankruptcy?

When a company files for a bankruptcy, all of its assets become a part of the bankruptcy estate. If the individual wants to access his/her 401K funds, he/she may file a motion of relief. The bankruptcy trustee can grant it and give the individual access to the funds. The individual may file the motion either by him/herself or hire a bankruptcy attorney to do so.

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