The 2005 bankruptcy code modification specifically authorizes withholding of wages for repayment of retirement fund loans. This includes all ERISA qualified pension loans, loans subject to section 72(p) of the Internal Revenue Code, and Thrift Savings Plans of the Federal Employee’s Retirement System. Such loans include 401(k) and government pensions.
Typically, after a bankruptcy filing, a creditor may not pursue the collection of any debt. However, collection of a payment on a pension loan is an exception to this law.
Additionally, the 2005 modification specifically states that funds paid for such loans is a permitted monthly expense to determine disposable income in a chapter 13 case. Although the code does not specifically state that such loan payments are permitted as a monthly expense to determine disposable income in a chapter 7, typically trustees permit the payment as an expense.
Additional, a pension loan is not dischargeable in bankruptcy.
Robert Manchel, NJ bankruptcy attorney, may be contacted at (866) 503-5655 to discuss how you may apply bankruptcy protection to your individual situation.