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401k Contributions Not a "Necessary Expense" for Above Median Filers in the 9th Cir.

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  • 401k Contributions Not a "Necessary Expense" for Above Median Filers in the 9th Cir.

    The 9th Circuit Bankruptcy Appellate Panel ruled yesterday that above median income filers cannot deduct voluntary contributions to a retirement plan when determining what their available disposable income is. This ruling brings my jurisdiction back to the way it was before BAPCPA - where the only retirement plan deductions that were allowed were those that were mandatory for employment. I my state the only mandatory ones cover government employees.

    In re Parks (8/6/12 - 9th Cir. BAP - Ordered Published - BAP No. MT-11-1366-JuMkH)

    Simply put, without a clearer direction comparable to the carve out from disposable income for the repayment of retirement loans in § 1322(f), it seems unlikely that Congress intended § 541(b)(7)(A) to bestow a benefit on above-median chapter 13 debtors while their creditors absorbed an even greater loss. . .

    Section 1325(b)(2)(A)(I) states that “disposable income means current monthly income received by the debtor . . . less amounts reasonably necessary to be expended . . . for the maintenance or support of the debtor . . . .” Here, because debtors’ income exceeded the state median, the “amounts reasonably needed to be expended” are determined by the “means test” set forth in § 707(b)(2). . . Voluntary contributions to 401(k) retirement plans are not mentioned as “reasonable and necessary expenses” under the “means test”. . .

    For all these reasons, we hold that § 541(b)(7) does not authorize chapter 13 debtors to exclude voluntary postpetition retirement contributions in any amount for purposes of calculating their disposable income

    In addition to the 401k contribution issue, this ruling seems to put the kibosh on our Trustees using actual living expenses that debtors have on a monthly basis (the reality approach they have always used). Instead, we now have an appellate ruling that states above median filers can only use the expenses allowed in means testing. While this part of the ruling is dicta (not necessary for the outcome of the case) I have to wonder if our district's trustees will feel obligated to require debtors to ignore their true expenses and only use the means test formula. That will truly suck big time.

    Last edited by despritfreya; 08-07-2012, 10:59 PM.

  • #2
    I hope those of us already in a plan are exempt from all the above. I contribute 10% of my base wages to my 401. This is my only retirement fund and I have to fund it myself. We were also allowed some expenses in our plan that were not in the means test.
    Filed July 2009. Discharged 08/08/2014. Awaiting closing. We made it !!!! Woo-hoo!


    • #3
      Originally posted by andy158 View Post
      I hope those of us already in a plan are exempt from all the above.
      This is a 9th Circuit decision. Do not know if any appellate court in your circuit has addressed or will be addressing this issue. Further I can't imagine it would impact cases already confimed, even in the 9th Cir.



      • #4
        So if I am paying back 200 a month to myself for 401 K loan, that is not allowed either?
        chpt 7 ,5-2009


        • #5
          Originally posted by Floridagail View Post
          So if I am paying back 200 a month to myself for 401 K loan, that is not allowed either?
          1. This is a decision in the 9th Cir., not the 11th.

          2. This decision does not deal with 401k loans. It deals with 401k contrbutions.

          So. . . no. . . it has no impact upon paying back a 401k loan which is specifically deemed necessary under 11 USC 1322(f).



          • #6
            Thanks for the quick response. My DH is considering a 13, if he cannot wait for retirement to file. He makes too much to file 7 right now.
            chpt 7 ,5-2009


            • #7
              Originally posted by despritfreya View Post
              Further I can't imagine it would impact cases already confimed, even in the 9th Cir.
              I hope you are right!
              LadyInTheRed is in the black!
              Filed Chap 13 April 2010. Discharged May 2015.
              $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!


              • #8
                although understandably not it's original intent, wouldn't the grandfather clause be applicable?

                a thought coming to mind, a very stringent building code has passed and is now enacted, so all of those in the past 100 years has to convert or correct to meet that new code? or is it from here on forward?
                8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! and all are welcome to bk forum's Florida State Questions and Answers on BK


                • #9
                  I am curious to see how this gets applied by the trustees... in particular I (or I should say my wife) have another child due in January. If I go to file a modified plan and they are going to take my 401k contributions out of the picture it might be worth just not modifying the plan......


                  • #10
                    Originally posted by goon View Post
                    I am curious to see how this gets applied by the trustees... If I go to file a modified plan and they are going to take my 401k contributions out of the picture it might be worth just not modifying the plan......
                    This certainly is the million dollar question. I just advised one of my clients to let it ride. Remember the requirement to pay your "projected disposable income" only comes into play if a trustee or unsecured creditor objects (See 11 USC 1325(b)). It may very well be that none of the Trustee's in Arizona will object although I doubt it as the more $$ you pay in the more $$ they make. What most assuredly will happen is that many more creditors will object. It was the creditor lobby that decided to participate in the BAP decision (filing amicus briefs) so it will most likely be the creditors who push this issue to the max.



                    • #11
                      We should all retire to Jamie Dimon's estate.
                      Let him take care of us in our old age.

                      Keep On Smilin'


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