{"id":4622,"date":"2011-07-15T09:00:02","date_gmt":"2011-07-15T09:00:02","guid":{"rendered":"http:\/\/www.duncanlawonline.com\/?p=4622"},"modified":"2026-06-08T12:37:00","modified_gmt":"2026-06-08T16:37:00","slug":"can-i-take-out-a-401k-loan-after-filing-chapter-13-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.duncanlawonline.com\/staging\/8350\/can-i-take-out-a-401k-loan-after-filing-chapter-13-bankruptcy\/","title":{"rendered":"Can I Take Out A 401(k) Loan After Filing Chapter 13 Bankruptcy?"},"content":{"rendered":"
\"can-bankruptcy-stop-wage-garnishment-north-carolina\"<\/figure>\n

You are in the middle of a Chapter 13 bankruptcy. You have been making your plan payments every month. Then life happens. Your car breaks down. A medical bill shows up. Your roof starts to leak.<\/p>\n

You remember you have money sitting in your 401(k). So you wonder: can I borrow some of it to get through?<\/p>\n

This is a very common question. It is a fair one, too. The good news is that a 401(k) loan during Chapter 13 is often possible. But there is one big rule you have to follow first. This article explains it in plain English.<\/p>\n

The Short Answer<\/h2>\n

In most cases, yes, you can take out a 401(k) loan after you file Chapter 13. But you cannot just do it on your own.<\/p>\n

You must ask the bankruptcy court for permission first. Your attorney does this by filing a paper called a "Motion to Incur Debt." The judge looks at why you need the money. If it is a real need, like a car or medical bills, the judge usually says yes. If it sounds more like a want, the answer may be no.<\/p>\n

So the key point is simple. Talk to your bankruptcy lawyer before you touch your 401(k). Getting permission first protects your case.<\/p>\n

Why You Need Court Permission<\/h2>\n

When you are in a Chapter 13 bankruptcy plan<\/a>, you are paying your creditors over three to five years. During that time, the court watches your money closely.<\/p>\n

A 401(k) loan is still a loan. You are taking on new debt. While you are in Chapter 13, you usually cannot take on new debt without asking the court first.<\/p>\n

This rule is there to protect both you and your creditors. The court wants to make sure a new payment does not throw your plan off track. If you take on a loan payment you cannot afford, you might fall behind. That could put your whole case at risk.<\/p>\n

So the law requires your lawyer to file a Motion to Incur Debt. Your lawyer prepares it and files it with the court. In some cases, you may need to attend a short hearing.<\/p>\n

What the Judge Looks At<\/h2>\n

The judge wants to know one main thing. Is this loan for something you truly need?<\/p>\n

In Chapter 13, your spending must be "reasonably necessary" for you and your family. This idea comes from the Bankruptcy Code (see 11 U.S.C. \u00a7 1325(b)). The judge uses that same standard when deciding whether to let you borrow.<\/p>\n

Here are reasons a judge often approves:<\/p>\n