Navigating a business failure at 45

[Texas Proud]

Benjamain, I sympathize with your situation and wish you the best. You should also seek professional advice so that you can consider all of your options during and post BK. Having said that, I would urge you to reconsider defaulting on the 401(k) loan. You should confirm this but I think doing so may cause it to be treated as a distribution from your 401(k), resulting in taxable income and a 10% penalty even if it is considered a hardship withdrawal.

In addition, you need to think of your financial stability first, so paying your 401(k) loan will increase your protected assets. This is likely an unpopular view, but I don't think there is a moral obligation to pay everything so that you are destitute. In the business world, BK and debt forgiveness are merely strategic options, although I don't condone the pension raiding that was used so often in the 80s. Personal loans to friends and family I think you should honor since they extended such loans when no one else presumably would. Good luck.

The defaulted loan WOULD be considered a distribution that would create the 10% penalty.... if you need more cash flow, I would suggest refinancing them and extend what you owe to 5 years.... I would not suggest default....

 

[Benjamin132]

The defaulted loan WOULD be considered a distribution that would create the 10% penalty.... if you need more cash flow, I would suggest refinancing them and extend what you owe to 5 years.... I would not suggest default....

Thanks for this comment. There are three loans totaling $25K. They are now down to two years payments remaining on them. Refinancing them will require I front the cash and pay them all off and take a new single note on the balance to get the cash back. Not feasible today of course. In the event I take the penalty on the distribution that would be costly but would free up the monthly cash to work with. I would be prevented from making any 401K contributions for 6 months. I learned this when I took a $9k hardship withdrawal in 2011 to pay legal fees for bankruptcy proceeding.

 

[Texas Proud]

Thanks for this comment. There are three loans totaling $25K. They are now down to two years payments remaining on them. Refinancing them will require I front the cash and pay them all off and take a new single note on the balance to get the cash back. Not feasible today of course. In the event I take the penalty on the distribution that would be costly but would free up the monthly cash to work with. I would be prevented from making any 401K contributions for 6 months. I learned this when I took a $9k hardship withdrawal in 2011 to pay legal fees for bankruptcy proceeding.

Are you sure you have to front the money Maybe it is because I am the one who did the paperwork for the company, but for my coworkers they can refinance without fronting the money.....

Another option if you have more borrowing ability (probably not, just throwing it out).... is to do another loan for 5 years and then pay off a short term.... as they say, rinse and repeat until you get all your loans to 5 years....

Note, this might cost you some.... we make the employee pay the $25 fee for taking out a new loan....


Also, is there room on your CCs A month or two of high interest so you can spread out the payments to get current cash flow might be worth it.... you would have to determine the cost/benefits to you....

Or, is there a family member willing to front it for a month If you explain what you are doing and why.... they might be more willing to help than just loaning money not knowing when they will get it back....