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Unpaid 401(k) loan of laid-off Debtor
I see no difference whether the 401-k loan is paid by debtor or his employer. I do not see it as a preferential transfer either way, since the 9th circuit says 401-k loans are not really loans, just the right hand paying the left. I see it as just exemption planning.
Mark Jessee
Sent from my iPhone
On Sep 17, 2012, at 6:54 PM, "Hank Paloci" wrote:
> Debtor was laid off owing about $20k on a 401(k) loan. He received a check for $53k as severance pay in a lump sum. He has not cashed the check yet.
>
> Debtor would like to file a Ch13 case to strip 2 2nd mortgages and cramdown a 1st on a rental property, and I am trying to minimize his exposure in terms of possessing non-exempt property in the form of cash. I would also like to help Debtor avoid the tax liability that will arise from not paying back the 401(k) loan. There is a substantial balance remaining in the 401(k).
>
> I hope I'm wrong, but I don't see where I can advise the Debtor to pay off the 401(k) after the check is cashed without it being called preferential.
>
> I've tried to get the employer to take back the severance check, use it to pay off the 401(k), and pay Debtor the difference. They declined to help.
>
> All ideas are appreciated.
>
>
I see no difference whether the 401-k loan is paid by debtor or his employer. I do not see it as a preferential transfer either way, since the 9th circuit says 401-k loans are not really loans, just the right hand paying the left. I see it as just exemption planning.Mark JesseeSent from my iPhoneOn Sep 17, 2012, at 6:54 PM, "Hank Paloci" <paloci66@yahoo.com> wrote:
Debtor was laid off owing about $20k on a 401(k) loan. He received a check for $53k as severance pay in a lump sum. He has not cashed the check yet.
Debtor would like to file a Ch13 case to strip 2 2nd mortgages and cramdown a 1st on a rental property, and I am trying to minimize his exposure in terms of possessing non-exempt property in the form of cash. I would also like to help Debtor avoid the tax liability that will arise from not paying back the 401(k) loan. There is a substantial balance remaining in the 401(k).
I hope I'm wrong, but I don't see where I can advise the Debtor to pay off the 401(k) after the check is cashed without it being called preferential.
I've tried to get the employer to take back the severance check, use it to pay off the 401(k), and pay Debtor the difference. They declined to help.
All ideas are appreciated.
The post was migrated from Yahoo.
Hank:
He can just cash the check and pay off the loan. It will not be a
preference. For a preference to occur there has to be a transaction
with a creditor. He cannot be his own creditor. There is much recent
law on that, that retirement loans are not debtor/creditor transactions.
Steven B. Lever
The post was migrated from Yahoo.
Debtor was laid off owing about $20k on a 401(k) loan. He received a check for $53k as severance pay in a lump sum. He has not cashed the check yet.
Debtor would like to file a Ch13 case to strip 2 2nd mortgages and cramdown a 1st on a rental property, and I am trying to minimize his exposure in terms of possessing non-exempt property in the form of cash. I would also like to help Debtor avoid the tax liability that will arise from not paying back the 401(k) loan. There is a substantial balance remaining in the 401(k).
I hope I'm wrong, but I don't see where I can advise the Debtor to pay off the 401(k) after the check is cashed without it being called preferential.
I've tried to get the employer to take back the severance check, use it to pay off the 401(k), and pay Debtor the difference. They declined to help.
All ideas are appreciated.
The post was migrated from Yahoo.