About six months ago, I took out a loan against my 401k to help a family member in need. Of course, the payments are taken out of my check at work to pay back the loan. If I have to file CH 7 due to my other unsecured debts, what is the most likely scenario in regards to me loaning money TO a family member being paid back into my 401K?
Review this with an attorney before filing any bankruptcy. If you file Chapter 7 bankruptcy, you must list all money which is owed to you. Your Chapter 7 trustee will likely argue that the money should go to the trustee, not to you. So be aware of the concept that the Chapter 7 trustee will stand in your shoes and try to collect anything coming your way, unless the money is somehow exempt. You can find a consumer attorney on or use the link below.
You definitely need to consult with an attorney on the specifics. Money owed to you is an asset of your case, and gifts or transfers of cash to anyone within 1 to 2 years of filing can be avoided as a fraudulent transaction and recovered by the trustee for your creditors.
There are things that can be done in preparation for a filing to address this, you need to consult with an attorney.
The debt your family member owes to you is an asset. If you can exempt it, it will be yours. If you can't exempt it, the repayment will go to the trustee to be used towards repaying a portion of your debts. Hope this perspective helps.
You would technically be required to list that as an asset and there is no state or federal exemption that would protect it. Your trustee would become the defacto owner of that account receivable, and would collect that money and distribute it pro-rata to your creditors. Discuss this with a bankruptcy attorney and there are some ways to plan/strategize to avoid this outcome. Good luck!
William Paul RossiniCommercial Real Estate AttorneyDallas, TX ·
I agree with my colleges when they urge you to find competent bankruptcy counsel to consult with on this issue. I'm unclear if you are contemplating filing a bankruptcy case or have already done so. If you have already filed a bankruptcy case, then I advise you to consult with your attorney about this matter right away. If you have not filed bankruptcy, I would not do so until you have cleared his matter up. Family transfers, unfortunately, are a ready source of income for Chapter 7 bankruptcy trustees. In a Chapter 13 case, this also would effect the payments that you would owe the Chapter 13 Trustee. There is always the option of not filing a bankruptcy case at all. Only your attorney, after reviewing all of the facts and circumstances of you case, can advise you appropriately.
