Hardship Distribution from ESOP

[Guest hami8859]

Need advice on how to be approved for a Hardship Distribution from my ESOP account. My employer is giving me a difficult time about approving a Hardship Distribution from my ESOP account. Our Plan summary does allow Hardship Distributions. Does anyone know who gives the final approval for the distribution...the Administrator or the Trustee? My wife has been unable to go back to work, she has been home taking care of our autistic son. We had charged up our credit cards paying for medical bills that the insurance co. did not pay because of the autism diagnosis and also for many types of therapies, speech, occupational, private tutors etc...... After 5 years of expensive therapies and hard work he is doing very well and has just entered a regular school. It was worth every penny to us. However, we are now over 100k in credit card debt. We have been struggling for these 5 years but have managed to make the minimum payments. Most recently, interest rates have risen and minimum payments have increased and the company I work for which had been thriving for over 10 years is now doing badly and my income has decreased about 30 to 40 % and the future looks bad. I have held out until now to request the hardship distribution but my company is giving me a hard time. He says the Trustee will not approve the Distribution based on our situation. I want to pay off these bills before I am unable to make the payments any longer. I do not want to ruin my credit, file bankruptcy or get anywhere near foreclosure. Any advice is appreciated

[masteff]

The person you've spoken to is right but not explaining it very well. It's not just that the Trustee won't approve it. It's that Congress and the IRS have provided only a few very narrow reasons for hardship withdrawals. Ask the Plan to give you the list of qualifying reasons.

One of the standard hardship reasons is medical expenses. You state you've had numerous med expenses not covered by insurance. These should qualify. You would need billing statements from the providers as documentation. You probably also have "explanations of benefit" from your insurance company, showing amounts you were required to pay out of pocket, which is good documentation too. Because this has gone on for several years, you may not be allowed to use the oldest expenses (up to a year back is probably reasonable but older than that is less so). While your current burden is the credit cards, the qualified hardship reason is the medical expenses, so focus on documenting that.

I'll also point out that mortgage companies typically have a 15-day grace period. During that time your mortgage is technically past due but not reported to the credit agencies. During that period, you can request a delinquency letter be faxed to you; this letter will show you're past due and typically indicates that failure to bring your account current will result in foreclosure (sometimes they just ominously say something like "adverse proceedings"). You can then take that letter to your plan as documentation for a hardship to prevent foreclosure (make sure that's an accepted reason in your plan first). While I don't advocate not paying one's mortgage, when you're between a rock and a hard place you have to work w/in the rules given you.