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Asked 6/6/2008
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If i am in a chapter 13 bankruptcy can i borrow from my 401k If i am in a chapter 13 bankruptcy can i borrow from by 401k without raising any red flags |
Answer 1/1 - Submitted 1/30/2012
No, you should not borrow from your 401(k) while you are in a chapter 13 bankruptcy, at least not without the permission of the chapter 13 trustee.
The goal in bankruptcy is that all your creditors be treated equally and that they be paid back a percentage to the best of your ability. If you bring additional funds into your budget by borrowing from a retirement account, the trustee will wonder what you are doing with those funds, because it will look like you don't want to use them to pay on any of your debts.
If you need this money because you can't afford your daily expenses while you're making your chapter 13 plan payment, then perhaps your plan payment is too high and it should be discussed with your attorney whether you can lower your plan payment.
Chapter 13 debtors can take out financing while they are in chapter 13 if necessary. For instance if your car breaks down while you are in chapter 13 and you need to buy a new one, you can file a motion with the court to have them approve you taking out a new loan to finance a necessary purchase.
Any change to a debtor's financial situation while in chapter 13 should be brought to the attention of your attorney and your chapter 13 trustee to see if the chapter 13 plan payment should be adjusted.
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