Legal Question in Bankruptcy in Indiana

Re: 401 K Loan

The 401K loan is probably secured by the fund assets. So, the loan will be paid from the 401K fund, and you will incur substantial tax liability for doing it.

Re: 401 K Loan

Hi, there. Sorry it took me awhile to respond. I was out of town for the last week.

To answer your question: A 401K loan differs from the traditional type of loan in that that loan is a loan to yourself. In essence, you took your own money out and promised to pay it back. With a traditional loan, you take someone else's money and promise to pay it back.

So, you usually can get a loan of someone else's money discharged (but if it's a secured loan, you have to give the property back generally). However, if you borrow your own money, you can't get the debt discharged because it's not really a debt to anyone but yourself.

Now, you can choose not to REPAY your loan to yourself, which means you would have penalties and interest to pay (which are tax issues), but that's not something you would get discharged in a bankruptcy.

Make sense? Hope this helps. Let me know if you have other questions....