Borrowing on 401-K prior to BK

[rockygirl]

We are going to file BK, it appears (decided tonight). We have been struggling about whether to do it, but it just looks like there is no way out. Prior to deciding to do this my husband borrowed on his 401 k 9,000 to do some serious home repairs. He put it in a separate account and we are watching what it is spent on carefully. By serious repairs, i mean, rotted back porch, problems with electricty, cracked broken rotted windows. (they are putting the windows in monday) Any wayway, we have not filed for BK yet. I have talked to 2 BK's lawyers and one was concerned a little and another was not. They both said the 401 k is exempt. I told them-its not a gift it's a loan and has to be paid back(it is taken out of his check)

I'm finding that even among lawyers there is a lot of confusion about the new laws. One says one thing-another something else.

I'm on Social security disability and a Long term disability from my last job. The lawyer says the trustee will considerthat , b/c both of them are unstable sources of income-esp the long term disability. They can terminate and stop paying with almost no notice. My husband wages are low. We showed one bk atty our 2003 and 2004 tax returns and she said we would qualify for the ch7.(even under the new laws)

Except for the money he took out of our 401 k for home repairs, she thinks it will go ok. she says it all depends on the trustee u get.

any opinions?

[willingtocope]

Exactly, it depends on the trustee. Borrowing on your 401k for repairing the house should be okay except that if you haven't spent it all by the time you file, the trustee may look at the money as an asset.

I'd suggest talking with one more attorney...then go with what the majority says. You do want an attorney that does BK's and is not just someone who fills in the blanks on the forms. BK isn't an exact science, and the trustees do have a lot of power to investigate if they choose to use it. You might also get some insight by attending a couple 341 meetings in your area...they are open to the public and you can see what the local trustees look for.

[LadynRed]

You also need to consider that the repayment of that 401K loan could be seen by a Trustee as a VOLUNTARY REPAYMENT. If that happens, then the amount for payments taking out of his check will be added BACK into your disposable income.

If his employer REQUIRES that the loan be paid back, and there's no CHOICE in repaying thru wage deductions, then it MAY be ok.

I'm with Willing... talk to another lawyer and ask specific questions. That 9K in the bank is no longer protected 401K funds, its an ASSET, liquid cash the Trustee can take. If you spend it ALL before you file and have receipts for every bit of it, you should be ok.