Chapter 13 (Bankruptcy) and 401k loans

[Guest Amanda Davis]

I have a participant with an outstanding 401k loan who has just filed for Chapter 13. She is telling us that the judge ordered her to "suspend" payments on her 401k loan. She has not yet produced documentation of any judge's order.

The loan payments are made through automatic payroll deduction and it is my impression that we do not have to stop them--they are exempt from such rulings.

Can a judge's order/Chapter 13 filing be enough to suspend payments?

Any help is appreciated!

[QDROphile]

The plan will have to stop receipt of loan payments. You may require notice of the proceeding. You may also have to grapple with a direction to return any payments that were accepted after the time of suspension, but that is much less common.

Sometimes payments are allowed to continue, but you would want to see provision for that because most of the time they must stop, same as for other creditors.

Next, the fiduciary has do decide how active to be in making claims as a creditor. Be sure to read all the notice materials you get from the bankruptcy court or trustee.