401k loan repayment

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Jeff:
Patterson v. Schumate, US Supremes
Property subject to a valid antialienation clause does not become property of the estate.
Fed Govt requires an antialienation clause for most retirement to be tax free. This keeps the creditors from getting the property the Government otherwise would have taxed, and hopefully, keeps people off of welfare in retirement.
IRA's do not have antialienation clauses, and as David points out, in 2005 they were given a new federal 1.0 milliion exemption.
dennis

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Jeff:
It used to be the case, under pre-2005 law, that IRA funds were property of
the estate and needed to be exempted, but that 401K funds, 403B, DB funds
and DC funds were not property of the estate due to 541(c)(2). Since 2005
the protections for 401k, were extended to IRA's, rollover IRAs, Roth IRAs,
etc. - so these are no longer property of the estate.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Jeffery B Smith
Sent: Tuesday, March 24, 2009 9:30 AM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] Re: 401k loan repayment
David:
You made a statement that 401K plans are not property of the estate. That
sent an alarm bell up my spine. I seem to recall a line of cases that
talked about the difference between property that is exempt from
administration and property that is not property of the estate to begin with
under section 541. I just cannot for the life of me recall the exact
context in which this came up, though clearly it had to do with the
trustees power to grab something. I dont recall how these cases turned
out, and the 2005 law change that increased the 522 exemption to over $1M
means the issue is unlikely to come up any more.
Anyway, does it help this analysis at all to take the position that the 401K
is property of the estate, its just exempt? If so, I think there may be
some helpful case law out there.
-Jeffrey B. Smith
CURD, GALINDO & SMITH, L.L.P.
301 East Ocean Blvd. #1700
Long Beach, CA 90802
(562) 624-1177
(562) 624-1178 fax
(310) 993-6560 cellular
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Jeff:

It used to be the case,
under pre-2005 law, that IRA funds were property of the estate and needed to be
exempted, but that 401K funds, 403B, DB funds and DC funds were not property of
the estate due to 541(c)(2). Since 2005 the protections for 401k, were
extended to IRA's, rollover IRAs, Roth IRAs, etc. - so these are no longerproperty of the estate.

David A.
Tilem
Certified Bankruptcy
Specialist*
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The case is Patterson -v- Schumate 504 U.S. 753 112S. Ct. 2242 (1992)

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I don't know, that's sort of what I was thinking as I posited my
hypothetical. I know they're not property of the estate, at least not in a
Chapter 7, and probably by definition not ever property of the estate as
Patterson v. Shumate has now been codified (although see 541(b)(7)), but I
don't know how this affects the ability to utilize those expenses on Form
22A.
*************************
Mark J. Markus
Law Office of Mark J. Markus
11684 Ventura Blvd. PMB #403
Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
Toll Free: 1-866-576-6275
web: http://www.bklaw.com/
This Firm is a Qualified Federal Debt Relief Agency (see what this means at

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David:
You made a statement that 401K plans are "not property of the estate". That
sent an alarm bell up my spine. I seem to recall a line of cases that
talked about the difference between property that is "exempt" from
administration and property that is not property of the estate to begin with
under section 541. I just cannot for the life of me recall the exact
context in which this came up, though clearly it had to do with the
trustee's power to grab something. I don't recall how these cases turned
out, and the 2005 law change that increased the 522 exemption to over $1M
means the issue is unlikely to come up any more.
Anyway, does it help this analysis at all to take the position that the 401K
is property of the estate, it's just exempt? If so, I think there may be
some helpful case law out there.
-Jeffrey B. Smith
CURD, GALINDO & SMITH, L.L.P.
301 East Ocean Blvd. #1700
Long Beach, CA 90802
(562) 624-1177
(562) 624-1178 fax
(310) 993-6560 cellular
charset="US-ASCII"

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Interesting. An illogical legal fiction me thinks. A statutory
creation of Congress and the IRS. They do what they want. They wanted
it both ways and that's how they got it.
They wanted the trust fund of a 401K to be beyond creditors reach but
they also wanted to empower a trustee to be able to help out an
employee/beneficiary with a loan when needed and for particular
proscribed reasons . . . .
So . . . Congress allows a plan's trustee to make loans to a plan
beneficiary who holds a contingent beneficial interest in the trust (the
plan) and to be secured by "the beneficiary's" money that is held in
trust toward payment of a future and contingent interest. When said
beneficiary files a bankruptcy and wants to pay back the loan to prevent
the loan from being recognized as income and to avoid the payment of an
early withdrawal penalty, the Ch 13 bankruptcy trustee righteously says
"if we can't get to the corpus, then he can't repay the loan to the
corpus."
More interesting . . . .what if you estimate and then put the
post-petition administrative tax liability for penalties and income tax
on the defaulted 401k loan into the plan? Yeah, it is not determined
yet and the return is not filed/assessed yet but . . . . I mean the Ch
13 trustee, by refusing to allow a line item for 401k payback, is
causing the problem. And, yeah, the debtor is just left to find the
money somewhere . . . . to avoid an administrative IRS claim.
Mark J. Markus wrote:
>
> I KNOW
>
>
>
> *From:* cdcbaa@yahoogroups.com [mailto:cdcbaa@yahoogroups.com] *On
> Behalf Of *David A. Tilem
> *Sent:* Friday, March 20, 2009 4:27 PM
> *To:* cdcbaa@yahoogroups.com
> *Subject:* RE: [cdcbaa] 401k loan repayment
>
>
>
> Assets in a 401K are not property of the estate.
>
>
>
>
>
> *David A. Tilem*
>
> Certified Bankruptcy Specialist*^*+ **^ *
>
> Law Offices of David A. Tilem (a debt relief agency)
>
> 206 N. Jackson Street, #201, Glendale, CA 91206
>
> Tel: 818-507-6000 Fax: 818-507-6800
>
>
>
> * Bankruptcy specialist cert. by State Bar of CA Bd of Legal
> Specialization.
>
> + Business bankruptcy specialist cert. by Amer. Bd. of Certification
>
> -----Original Message-----
> *From:* cdcbaa@yahoogroups.com [mailto:cdcbaa@yahoogroups.com] *On
> Behalf Of *Mark J. Markus
> *Sent:* Friday, March 20, 2009 3:42 PM
> *To:* cdcbaa@yahoogroups.com
> *Subject:* [cdcbaa] 401k loan repayment
>
>
> I am just reading a client's 401k loan agreement and it states that
> the loan
> is secured by the outstanding balance in her 401k. Does this not make it a
> debt secured by assets of the bankruptcy estate (if and when a case is
> filed)? Doesn't this allow her to amortize the repayment of the loan over
> 60 months and deduct that on the means test in a Chapter 7 case? (Ch. 13
> form 22C already provides a place for this separately--line 55) but
> for some
> reason not on Form 22A.
>
> Thoughts?
>
> *************************
> Mark J. Markus
> Law Office of Mark J. Markus
> 11684 Ventura Blvd. PMB #403
> Studio City, CA 91604-2652
> (818)509-1173 (818)509-1460 (fax)
> Toll Free: 1-866-576-6275
> web: http://www.bklaw.com/
> This Firm is a Qualified Federal Debt Relief Agency (see what this
> means at
> http://bklaw.com/bankruptcy-blog/2008/0 ... efinition/
> )
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I KNOW

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Assets in a 401K are not property of the estate.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Mark J. Markus
Sent: Friday, March 20, 2009 3:42 PM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] 401k loan repayment
I am just reading a client's 401k loan agreement and it states that the loan
is secured by the outstanding balance in her 401k. Does this not make it a
debt secured by assets of the bankruptcy estate (if and when a case is
filed)? Doesn't this allow her to amortize the repayment of the loan over
60 months and deduct that on the means test in a Chapter 7 case? (Ch. 13
form 22C already provides a place for this separately--line 55) but for some
reason not on Form 22A.
Thoughts?
*************************
Mark J. Markus
Law Office of Mark J. Markus
11684 Ventura Blvd. PMB #403
Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
Toll Free: 1-866-576-6275
web: http://www.bklaw. com/
This Firm is a Qualified Federal Debt Relief Agency (see what this means at
http://bklaw.

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OK, not assets of the estate, because it's not....but secured nevertheless.
Mark J. Markus
Sent: Friday, March 20, 2009 3:42 PM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] 401k loan repayment
I am just reading a client's 401k loan agreement and it states that the loan
is secured by the outstanding balance in her 401k. Does this not make it a
debt secured by assets of the bankruptcy estate (if and when a case is
filed)? Doesn't this allow her to amortize the repayment of the loan over
60 months and deduct that on the means test in a Chapter 7 case? (Ch. 13
form 22C already provides a place for this separately--line 55) but for some
reason not on Form 22A.
Thoughts?
*************************
Mark J. Markus
Law Office of Mark J. Markus
11684 Ventura Blvd. PMB #403
Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
Toll Free: 1-866-576-6275
web: http://www.bklaw.com/
This Firm is a Qualified Federal Debt Relief Agency (see what this means at

The post was migrated from Yahoo.
Yahoo Bot
Posts: 22904
Joined: Sun Oct 18, 2020 11:38 pm


I am just reading a client's 401k loan agreement and it states that the loan
is secured by the outstanding balance in her 401k. Does this not make it a
debt secured by assets of the bankruptcy estate (if and when a case is
filed)? Doesn't this allow her to amortize the repayment of the loan over
60 months and deduct that on the means test in a Chapter 7 case? (Ch. 13
form 22C already provides a place for this separately--line 55) but for some
reason not on Form 22A.
Thoughts?
*************************
Mark J. Markus
Law Office of Mark J. Markus
11684 Ventura Blvd. PMB #403
Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
Toll Free: 1-866-576-6275
web: http://www.bklaw.com/
This Firm is a Qualified Federal Debt Relief Agency (see what this means at

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