Friday, November 5, 2010

Are 401k withdraws income for the Means Test?

My understanding is that withdrawals from qualified retirement plans (pension, IRA) within six months prior to filing bankruptcy are included as income for purposes of the means test. Large amounts of income from retirement accounts may disqualify a debtor from filing Chapter 7 in which case the debtor should postpone filing Chapter 7 until the retirement withdrawals “age” beyond the six month means test look back.

On the other hand, if the debtor chooses to file Chapter 13 bankruptcy the pre-filing pension withdrawals will not be used to calculate available income to fund a Chapter 13 plan. In other words, the pension withdrawals will not increase the plan payment amount.