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  • 401K help?

    I am new and do not know if this is the correct topic to put this under but I am going to try.

    Husband and I took out 401K loan 11/2006 from husbands employer of 8 years ago for 1500.00 to pay for son's medical bills. His account is still with their plan and he has never touched it until now. He is 100% vested for over 6000.00 Missed 2 payments in Aug and Sep. On 10/18/2007 sheriff shows up with summons and tells us we are being sued in court. Called plan administrator and told her payments on way (2 payments of 48.58) and she said okay then nothing will proceed further, she will contact lawyer. Told to send payments to lawyer on summons and I did. Checks were not cashed when I received my bank statement. Called plan admin. again and she stated I have not received any payments. She says "oh, wait just gone 1 in today from lawyers office" (this was 22 days later).

    The very next day we get letters from the court that the judgement has been entered and here is your decree of judgement with court costs, attorney fees, and filing fees.

    Call plan administrator again she states there is nothing they can do now. This will not go on your credit report, you will just receive a 1099 form. What do ya know, pulled credit reports and there it is a judgement listing 1209.00 owed to them. How can we owe them when we are being issued a 1099.

    We are right in the middle refinancing and now it is not going to happen!! This tanked our credit scores by 40 points

    Can anyone help and give me some advice. The rest of my husbands money is still in there!!!!

  • #2
    Distribution

    Maybe I am forgetting something here, but why didn't your 401k company just treat it as a distribution? In all my years of administering our 401k, I have never heard of a company seeking leagal action for a default 401k loan. They will usually treat a defaulted loan as a distribution and issue a 1099 on the unpaid balance only. Then then IRS will tax and penalize you when you file your annual return. Has anyone else heard of this?

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    • #3
      THe plan administrator said we will recieve a 1099 for distribution but a decree of judgement was entered to obtain the money for attorney costs, filing fees, post judgement interest, and costs of suit. She said all of this will be taken out of my husbands 401K account

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      • #4
        Not having read your 401k document and the rules your plan has set up for load repayments, it's hard to comment.
        The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.

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