How long after filing for bankruptcy can I take out a 401k loan?

How long after filing for bankruptcy can I take out a 401k loan, you might ask. There is never a good time to take out a loan on your retirement plan because you end up paying interest to the financial organization and you cut into your retirement plan's ability to earn you a return. However, it may be necessary in situations of not having employment. If you do take out a 401k loan, do take into consideration when you should tap into these funds.

When To Take a 401K

After filing bankruptcy, there are no restrictions on when you can tap into your 401k through a loan or a direct withdrawal. There are penalties for those who withdraw this money before they are at least 55 ½ years of age, but there are no consequences from the bankruptcy case itself. There are a few things to note.

• Do not withdraw funds prior to filing bankruptcy because these funds become an asset that may be seized by creditors. Otherwise, your retirement accounts are protected.
• After formally filing the bankruptcy with the court (get confirmation of this from your attorney) you can initiate the loan process.
• In Chapter 13, you may need to report these withdrawals as income and it may become a factor in your repayment plan.

If you feel it is necessary to withdraw funds from your 401k retirement account, do so only after you have filed bankruptcy, no sooner than the actual court's receipt of your documents. Do discuss your options with an attorney who can offer input on the long term benefits of these withdrawals.