Bankruptcy and your 401K
Many debtors attempt to resolve their problems by taking money from their 401k. They then decide that they can’t take care of their business as they thought and end up at a bankruptcy attorney’s office. Most of the time it seems that the debtor is current on their mortgage and car payments, but are delinquent on their credit card payments. The best route would be to file a Chapter 7 bankruptcy. In consulting with the debtor the bankruptcy attorney learns that the debtor has taken out a loan on his 401k. This can cause a problem in a Chapter 7 bankruptcy. If the loan was taken out within the last 6 months, then the bankruptcy attorney will have to list it as income on the means test in a Chapter 7 bankruptcy. This means, if you truly want to file a >chapter 7 bankruptcy, you will need to wait out the time period so you don’t have to list it as income to ensure that you qualify to file the Chapter 7 bankruptcy. If you took out a small loan, then it may not have an effect like a large loan. If you have any questions about taking a 401k loan, please consult with a bankruptcy attorney prior to doing so.
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