28 Nov Will A 401K Loan Payment Disqualify Me From Chapter 7?
The Means Test in bankruptcy treats 401K loan repayments differently under Chapter 7 versus Chapter 13. A recent case in Connecticut reveals that it may make no difference. If your income is such that no money would be available for creditors under Chapter 13 then the deductions may be allowable under Chapter 7 as well.
While deciding whether or not to allow an expense for replacement of a car int he future, Judge Dabrowski also considered the allowance of a 401K loan repayment and 401K deductions from income. He found that while the deductions might not be allowed under Chapter 7, they are allowed under Chapter 13. When calculating the Debtor’s disposable income under Chapter 13 with the allowed loan repayments and contributions, he found that there would be no dispoable income left for creditors in the case. Thus allowing the deductions were not barred by the totality of the circumstances in Chapter 7.
The Means Test is a complicated and difficult calculation of income and expenses. It is designed to milk the most out of your budget to pay creditors. But you must make many determinations and fit items into many categories, such that it is best done by a bankruptcy lawyer. Don’t trust your future to an online calculator that may not take local decisions into account.