New Law Exempts Plan Loans from Bankruptcy

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which became effective on October 17, 2005, exempts loans to an employee from a tax-qualified retirement plan, such as a 401(k) plan, from the bankruptcy process. As a result, plan administrators who are notified that a participant has filed bankruptcy after October 17 are no longer required to stop payroll withholding in order to repay a plan loan, or to declare the plan loan in default.