I am 57 yrs old and was recently laid off from my job. We were 2 1/2 years into a chapter 13 bankruptcy at the time of the layoff. I contacted our attorney and told them I planned to use the 401K and they said that would add the same amount to the bankruptcy at the end. The trustee says they don't generally do that. Otherwise they will dismiss the bankruptcy and I have to start over again. I don't want to lose my house, what do I do?
So sorry for your family troubles… Although losing your home is considered a financial hardship and may allow you to take a distribution from your 401(k), it will likely still be subject to the 10% penalty and will still be a taxable distribution. Your plan may or may not allow you to take a distribution so check with your H/R Department, benefits administrator, or the custodian where the account is held. Although not the best use of retirement money, a 401(k) loan may be an option.
It sounds as if taking a distribution increases general funds available for paying down ALL debts. I am not a lawyer and would suggest that you defer these questions back to your attorney as they are in the best position to guide you.
This is a very complex and emotional issue to discuss on an open web portal. I would ask that you call my office and we can discuss alternatives as we have helped people through a similar situation…
Best wishes for a speedy recovery
Elizabeth, . You can't really cash your 401K while you are in chapter 13 and have the cash from 401k only apply to your your mortgage. Trustee has to follow the bankruptcy rules. Since you already lost your job and assuming you are single you may be able to convert your bankruptcy to chapter 7 or try to get your mortgage modified while continue the chapter 13 plan. If your bankruptcy lawyer is not helpful, dont hesitate to ask for second opinion from another bankruptcy lawyer. Chapter 13 has very specific rules and and there are also local rules specific to each court. It would not suprise me if each trustee in your area interprets these laws differently. An experienced chapter 13 bankruptcy in your local area can help.