How is a 401k affected in a Chapter 13?

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How is a 401k affected in a Chapter 13?

If we file a Chapter 13 and then in a few months my husband quits his job for another job, will he still get all his 401k?

Asked on May 26, 2011 under Bankruptcy Law, Indiana

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

I am a little confused by your question.  401k assets are generally protected from creditors under state and federal law in a Chapter 13 bankruptcy--they are usually not part of the bankruptcy estate.  In other words, they are not liquidated in the bankruptcy and remain in full force and effect.  As for your husband leaving his job, he will have to roll over the 401K in to another qualified AND protected plan.  If he liquidates the 401K he will face tax consequences (but maybe not penalties; there are some rules now that allow for withdrawl under certain circumstances) and then possible attachment by the trustee in bankruptcy.  Please make a plan and then go and see someone about the consequences.  Good luck.  

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