Bankruptcy, loan payments and contributions

[RCK]

I have reviewed other posts, and have not found any discussion on point for this issue, so I apologize if there has been one.

401(k) participant has a loan outstanding when plan is notified of Bankruptcy filing. We shut off the loan deduction, and (when the appropriate time comes) default the loan.

QUESTION: should we also be shutting off the contribution?

My feeling is that the participant himself can do that if he so desires, but that the plan and its recordkeepoer have neither the right nor the responsibility to do so.

RCK

[mbozek]

Q1- What contributions are u talking about?

Q2- have u or counsel for the plan read the order of the bankruptcy ct that was served on the plan admin?

[RCK]

A-1: Regular 401(k) contributions that the participant has been making in addition to the loan payments.

A-2 The Notice says "Creditors May Not take Certain Actions. Prohibited actions are listed in Bankruptcy Code 362. Common Expmples of prohibited actions include contacting the debtor by telephone, mail or otherwise to demand repayment; taking actions to collect money or obtain property from the debtor; repossessing the debtor's property; starting or continuing lawsuits of foreclosures; and garnishing or deducting from debtor's wages."

It is the last phrase that concerns me, because I think that it refers only to deductions in connection with the debt.

RCK

[mbozek]

A-2- Yes A-2 only refers to collection of loan payments, not salary reduction contributions.

[RCK]

Since I did not the concensus of response that I had been hoping for, had to break down and call plan's ERISA counsel. She agreed with mbozek--bankruptcy filing stops loan payments, but NOT employee conributions.

RCK