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    Curious4Life's Avatar
    Curious4Life Posts: 1, Reputation: 1
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    #1

    Apr 16, 2007, 10:22 AM
    401K to pay off bankruptcy
    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's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #2

    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.
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