Legal Question in Bankruptcy in Pennsylvania

Chap 13 BK

I filed a chapter 13 BK shortly before the new laws went into affect. At the time I had a loan through my 401k plan, which the trustee made me default on because it was considered income. My question is I just received the 1099 form for the defaulted loan. Do I have to include this as income when filing taxes? Also, I am going to file my taxes, but will be unable to pay more than 20.00 a month towards the taxes owed on the deafulted loan. I remember reading a clause in the BK law that stated something like ''debt incurred due to BK is not to be included as income on your taxes''. I cannot find anyone who can tell me whether or not my defaulted loan is considered income or debt due to BK. HELP!!!!!


Asked on 4/16/07, 7:26 am

1 Answer from Attorneys
Glenn Brown Real World Law, P.C.

Re: Chap 13 BK

I am not a tax attorney so this answer should be considered incomplete.

Loans may also be declared to be in default in the event of false statements by the participant on the loan application, bankruptcy by the participant, or the death of the participant. Under the Internal Revenue Code, a default on a 401(k) Plan loan creates a taxable event, whereby the amount of unpaid principal will be reported to the IRS as current income and you must pay taxes and applicable tax penalties on that amount. In addition, borrowers with a loan in default will be prohibited from obtaining future loans from the plan and will be required to suspend Plan contributions.

Find a tax attorney or good tax accountant for more info.

Good luck.

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Answered on 4/16/07, 9:04 am


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