A lot of people who have filed for bankruptcy are not aware of the effect that it has on your retirement funds if you have borrowed against it. This article will try to answer your apprehension regarding the loan from the retirement plan in the case when you are filing for bankruptcy. No doubt by now you already know you can borrow money from your retirement plan. Depending the variety of bankruptcy you are filing (Chapter 7 or Chapter 13 bankruptcy), it changes the consequence of the loan you have against the retirement plan.
If you have filed for Chapter 7 bankruptcy protection, your loan from the retirement plan will NOT be discharged. You will still have to pay yourself back (into the retirement plan) at the end of the bankruptcy. Chapter 7 bankruptcy code allows you to discharge debt or loans that you owe to other people, but a loan to yourself is not considered "owing to other people". You will still have to pay yourself back in full post bankruptcy.
Chapter 13 works in a different way in which you will generally pay off your debt in installment, with the chance of a much lowered outstanding balance. When the pre-arranged debt is paid off in full, you will be discharged through Chapter 13 bankruptcy. The determination to discharge the loan from the retirement plan is made by the bankruptcy court when you are filing for Chapter 13 bankruptcy. The bankruptcy court has to determine if you have disposable income that you can use for your repayment into the retirement plan. The bankruptcy court largely will allow the loan to be discharged if you have minimal savings and you are close to the retirement age.
How does automatic stay apply to the loan against my retirement plan?
No matter if you are filing under Chapter 7 or Chapter 13 bankruptcy, you will be given by law the statute of automatic stay. Automatic stay is where no creditors can contact you, or harass you for payment until the case is dealt with inside the court of law. It is not possible to employ the statute of automatic stay to not repay the loan you have taken out from the retirement plan. The legal definition of automatic stay requires that the creditors must stop pursuing your debt when you have file for bankruptcy protection. But if you have a loan from the retirement plan, it is borrowing from yourself, so there is no creditor involved. Therefore you cannot use the automatic stay statute to stop repaying your retirement loan during the bankruptcy process, even though the loan might be eventually discharged through Chapter 13 bankruptcy.
If you are going to be filing for bankruptcy protection, you should seriously consider seeking professional help with an attorney. If you use a qualified bankruptcy lawyer, you should be able to have all your questions answered. You emphatically want to find a lawyer that you can rely on and who can answer every question you might have concerning the entire process. This is the person who will make sure that you can start a "new life" after your bankruptcy discharge, so choose wisely. If you need to find a qualified bankruptcy lawyer, or if you have more questions on bankruptcy in general, please visit our website ToFileBankruptcyOrNot.com.
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