Can I Contribute To My 401K After My 401K Loan Ends While In My Chapter 13 Bankruptcy?
In these times of uncertainty about whether social security will be available in the future, it is more important than ever that contributions to retirement accounts be done. One Judge in the Eastern District of Kentucky has decided that you can contribute to your 401K plan after your 401K loan ends rather than pay the extra amount into your bankruptcy. This is a big change in the practice of Chapter 13 bankruptcy in the Eastern District of Kentucky. In the past the Trustee has required that once a 401K loan is paid off the plan payment would then have to increase by the amount of the monthly 401K loan amount. For debtors who were not contributing to their 401K because of the loan, this meant that they could not contribute to their 401K during the Chapter 13 plan. If a debtor is making a payment on a 401K loan and contributing to the 401K at the same time, this will not apply to that debtor. They will still be required to increase their plan payments when the 401K loan ends.
Example: Debtor is filing a Chapter 13 plan on January 1, 2010 with payments of $500 per month for 5 years. He has a 401K loan of $250 per month that ends in December of 2012. He is not currently contributing to his 401K. The past practice would require that he increase his payment to the Chapter 13 plan in January of 2013 to $750 per month. Under the new opinion, he would not have to increase his payment to the Chapter 13 plan and instead could apply the $250 per month to a 401K contribution.
The Trustee has asked that in these cases the debtor be required to notify the Trustee within 10 days of the ending of the 401K loan with proof that the amount was now being contributed to the 401K. If this does not occur then the debtor may be required to turn over the funds to the Trustee as part of the plan payment.
In Re: Seafort and Schuler 08-22380/08-22417
