Why can’t I cash out my 401k after I file Chapter 7?

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Why can’t I cash out my 401k after I file Chapter 7?

I was told that after I file it’s a non-issue. My attorney recommended not doing it until it was discharged but didn’t say it was illegal and couldn’t be done.

Asked on November 27, 2011 under Bankruptcy Law, Wisconsin

Answers:

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

Answered 10 years ago | Contributor

There is a saying that timing is everything in life.  And so it is true in the legal world as well.  I do not know who told you that it is a "non-issue" as you say but I would listen to the advice from your attorney and leave your 401K in tact until you have been discharged in the Chapter 7 bankruptcy.  If you cash it out now the trustee can indeed consider it as "income" for purposes of the bankruptcy, again depending on where you are in the game.  That is really not a position you want to be in I am sure. Speak again with your attorney about the law as it applies to you (if you filed under federal or state exemptions).  Good luck. 


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