Legal Question in Investment Law in California

I took a loan from my 401K. My monthly payment is $800 a month for 5 years. Long story short... I am basically "robbing from Peter to pay Paul" so to speak. This $800 monthly payment, along with other payments, are too much for us to handle. Trying to avoid filing bankruptcy, if we did NOT have to pay back my 401K loan, eliminating my $800 a month payment, (in addition to modifying our home loan which we are in the process of doing) we would finally be back on the road to recovery financially. I am 46 years old. My question is:

Is there anyway I can keep this loan, without having to pay it back? I do understand that I would have to pay taxes and a penalty and am willing to accept that fact. I also realize its taking away from our future retirement. I understand the consequences. All I want to know, is this a possibity for me to do? Our hardship is financial. We are in the process of doing a mortgage loan modification and this, combined with no $800 monthly payment to my 401K would definitely put us back on the correct financial path. So is there a way I can arrange to not have to pay back my 401K loan? Thank you.

Also, if an attorney could handle this for me, I am willing to retain an attorney to do so (if the retainer was feasible). Thank you.


Asked on 3/29/10, 3:29 pm

1 Answer from Attorneys

You can always not pay it back. The question is what would be the consequences and would your plan allow it, both under the plan's rules, the loan documents and the tax law. I would be happy to take a fee to sort this out for you, but you really don't need a lawyer, at least not at this stage to be sure. This is something to take up with your 401k administrator. Not only will they know the answer, their answer will be binding unless you want to challenge it in court. Only if you don't like their answer and feel you want to challenge it legally, does it make sense to get lawyers involved. Save your money and work with your plan administrator, at least until you hit a wall and you have reason to think they are wrong.

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Answered on 4/03/10, 3:57 pm


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