Legal Question in Bankruptcy in California

401k loan

Can a person list an outstanding 401k plan loan (with automatic payroll deduction) in their bankruptcy? If so, can they have the loan balance taken out of their 401k assets to pay off the loan and stop the payroll deductions? Thanks!


Asked on 12/06/01, 4:15 pm

1 Answer from Attorneys
Robert Miller Robert L. Miller & Associates, A Law Corporation

Re: 401k loan

Thanks for your posting. A 401(k) is still a loan that has to be listed within the bankruptcy petition.

Normally, a 401(k) is exempt property. In bankruptcy, you can discharge the debt, however, in doing so, you are subjecting yourself to a "taxable event", for which you may be taxed.

This is bad. It is even worse in that you are losing out on years of tax-deferred compounding, which does not work to your benefit.

Thanks, and if you have any other questions, please feel free to email or call my office.

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Answered on 12/06/01, 7:32 pm


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