Expert: Terry Leeders - 1/14/2009

Question
I filing a Chapter 7 bankruptcy how would a 401K Loan be handled, would it be a unsecured priority claim or a priority claim and is it dischargable.

Answer
None of the above.
A 401(k) loan is not a debt in bankruptcy.  It is just money owed by the debtor, to themselves (albeit through their 401(k) plan provider.  It does not need to be listed in the bankruptcy schedules as a debt (the payment may show on the income/expense sheet).  You will still need to pay the loan back though however, or suffer the penalties as stated in your loan contract.