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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The post was migrated from Yahoo.