Bankruptcy and 401k Loans

[oriecat]

I have an employee with a 401k loan. Yesterday I received a withholding order for a Chap 13 bankruptcy. The notice says "No deductions should be made or permitted for any wage garnishment, wage assignment, credit union or any other indebtedness.... [snip] deductions required by [snip] insurance, pension, or union dues agreement are not intended to be disturbed."

So I am not sure if the 401k loan payment should be stopped. Is it considered an indebtedness? Or would it be seen as a pension agreement? I called the trustee for direction, but have not heard back yet and wanted to get some opinions. I read some previous threads on the subject, but they were confusing and unclear to me, with no concensus among respondents. Has there been any clarification on these points?

Thank you.

[Guest halka]

Unless/until you receive a waiver from the bankruptcy proceeding, you should cease withholding/crediting the participant loan payments. Yes, this could eventually result in a deemed distribution, but that's probably not so great a problem for someone in bankruptcy.

[oriecat]

Would you stop it because it is considered an indebtedness? Some of the posts in older threads made it sound like loans are not considered indebtedness.

[Harwood]

You need the interpretation of whether this court considers the loan payment to be "other indebtedness" or a deduction required by pension.

[oriecat]

Well I heard back from the Trustee office and she said to continue deducting for now. After the meeting of creditors they could decide to require it to be stopped and then I would receive additional instructions.