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Can a large 401k contribution before filling for Chapter 7 be reversed by the trustee, or considered preferential by the court?

Seattle, WA |

I have an LLC business account worth about $11k, roughly $8k of which came from my 401k almost 3 years ago - This is how I was able to afford starting my company, which I am now closing. If I were to contribute all $11k to my 401k account, would this be considered hiding funds, or anything of that nature that could cause my filing to be rejected? Or, as could be done with anything deemed preferential payment, could it be reversed and taken by the trustee?

Attorney Answers 4

  1. Get some legal help before transferring. It could be a BIG problem if the wrong things are "purchased." 11K sounds like enough money to live on for a while, pending a new job, or new business venture. Don't rush to file.

  2. Consult with and retain an experienced bankruptcy attorney to guide you through this process. There are many pitfalls and many ways to lose assets if not properly advised and handled.

  3. The 401(k) loan has repayment terms. If you pay more than required, it would be a reversible preference if your business or you filed a bankruptcy. This is why you need an attorney to assist you. Bankruptcy is a maze, and you definitely need a guide through it.

  4. Yes paying one creditor over another is a preferential payment and can be undone by a trustee. Consult an attorney and hire one. If you are audited by the UST then they look for this kind of thing and in addition it has to be listed in the Statement of Financial affairs. What triggers an audit no one knows. As a general answer do not transfer or do anything prior to filing it is a generally a no no!

    The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of Illinois. Responses are answers to general legal questions and the receiver of such question should consult a local attorney for specific answers to questions.

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