In the bankruptcy case (Barrows, James R. and Terri L.; In re (Bar¬rows v. Christians, Trustee)), debtors accused of acting in bad faith after borrowing funds from their retirement account on the eve of their bankruptcy filing.
The details of the bankruptcy case:
In the Chapter 7 bankruptcy case, the debtors completed their bankruptcy paperwork stating that they had an average daily balance of $300 in their checking account and $25 in their savings account. However, after turning in the bankruptcy paperwork to their bankruptcy attorney; but prior to signing the paperwork, the debtors borrowed $17,000 from the debtor-husband's 401K retirement account. They deposited the money into their checking account one week before signing and filing their bankruptcy paperwork which stated that they had $300 in their checking account and $25 in their savings.
Once the debtors attended the meeting of the creditors, the bankruptcy trustee demanded that they turn over the money to the bankruptcy court. In response, the debtors claimed the money as exempt. The bankruptcy court ruled in favor of the trustee saying that the debtors acted in bad faith. In other words, the debtors gave the appearance of attempting to be deceptive about their actual bank account balance.
If you're filing bankruptcy you must make sure that ALL of your paperwork is accurate and CURRENT. Make your bankruptcy attorney aware of any transfers, loans or gifts that you receive during or right before filing bankruptcy. Failing to do so, could jeopardize your assets and the success of your bankruptcy case.