Will Borrowing from My Retirement Funds Affect My Bankruptcy Filing?

Consumers facing financial difficulties may look to borrow from their retirement plan, but how will this affect your bankruptcy case? It likely depends on which chapter you file and whether or not you plan to borrow from the plan before or after you file.

There are several reasons why your decision to borrow from your retirement plan may not affect your filing. It is likely funds from the retirement plan are not considered part of the bankruptcy estate. Even if they were there are exemptions available that can help protect them in Chapter 7 or Chapter 13 bankruptcy .

If you already filed for bankruptcy protection, funds earned since you filed may not be considered part of the estate. Yet, this may allow for income earned after you file to be placed toward repaying what you borrowed. Chapter 13 bankruptcy may have a different result. If you are granted by your retirement plan to borrow against it, this may reduce the amount of disposable income available to pay on debt obligations included in your filing. You may need to obtain permission or an approval by the court, while proving you’ll be able to satisfy payment obligations associated in completing your Chapter 13 case.

In most cases, the decision to borrow may not affect your filing but it is recommended to discuss your intentions with your bankruptcy attorney . Even if you get an approval to borrow against your retirement plan funds, it’s possible you may be granted a certain amount.