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Curious4Life
Apr 16, 2007, 10:22 AM
Hello, What are the ramifications of possibly taking a disbursment from my 401K and paying the penalty so I can pay off a Chapter 13 Bankruptcy. And if that is a possibility, what happens if I would owe 10k to chapter 13 and get a 30k disbursment and roll the 20k into an IRA. Is that even allowed or possible?

AtlantaTaxExpert
Apr 27, 2007, 01:32 PM
Yes, you CAN do this, but why?

The 401K is exempt from collection for the bankruptcy debts. Why voluntarily give up this money (paying normal state and federal income taxes PLUS a 10% Early Withdrawal Penalty)?

That defeats the purpose of filing for bankruptcy to begin with.