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You are here: Experts > Business > Corporate Law > Bankruptcy Law > 401K loan prebankruptcy
Expert: Terry Leeders - 10/23/2009
Question
I may be filing a CHP 13 to resolve a judgment. I would like to replace my car prior to filing. If I take a loan from my 401K to do this how may this effect my filing...can the trustee take issue with this?
Answer
2 issues:
1. if the car is paid in full, that is an asset then, and you would have to pay back enough of the unsecured debt in the ch13 to cover any un-exempt equity in that vehicle.
2. The 401k loan will be allowed to be paid during the case, but when the payment ends, the bankruptcy payment will increase by that same amount. I would recommend financing a vehicle traditionally, rolling that into the chapter 13, and thus keeping your 401k intact, as well as paying less to the unsecured creditors since there is no equity in the car.
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