484 B.R. 387
Bankr. W.D. Wash.2012Background
- Bruce filed a Chapter 7 case later converted to Chapter 13 on August 6, 2012 in the Western District of Washington.
- Post-conversion, Bruce filed Form B22C showing CMI of $5,301.37 and a total household of three, placing him below the Washington state median for Chapter 13 purposes.
- Bruce’s Amended Schedule I included monthly 401(k) contributions of $160.33 and a $32.50 401(k) loan repayment; originally, Schedule I showed $195 and $32.50.
- Bruce’s Chapter 13 plan proposed paying $900 per month for 36 months to creditors; it anticipated 0% recovery for nonpriority unsecured claims.
- The Trustee objected, claiming 401(k) contributions are disposable income to be committed to the plan and that the 401(k) loan repayment affect plan payments; Parks was cited as controlling.
- Bruce argued Parks is inapplicable to below-median debtors and that 401(k) contributions should be treated as reasonably necessary expenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are 401(k) contributions reasonably necessary under §1325(b)(2) for a below-median debtor? | Bruce argues 401(k) contributions are reasonably necessary for maintenance. | Trustee argues 401(k) contributions are not necessary under the means test. | Yes; 401(k) contributions are reasonably necessary for a below-median debtor. |
| Should the six-month prepetition 401(k) contributions be excluded from CMI/disposable income under §541(b)(7)(A)? | Bruce seeks exclusion from disposable income under §541(b)(7)(A) based on Parks rationale. | Trustee relies on Parks to treat prepetition contributions as not disposable income only if excluded from property of the estate. | Yes; the six-month average is excluded from CMI and thus from disposable income under §541(b)(7)(A)(i) when prepetition contributions occurred. |
| Does Parks control the treatment of 401(k) contributions for below-median debtors? | Bruce contends Parks is distinguishable and not controlling for below-median cases. | Trustee argues Parks governs the interpretation of §541(b)(7)(A) and its application to disposable income. | Parks does not control; Parks is distinguished, and this court adopts a broader interpretation consistent with §541(b)(7)(A). |
Key Cases Cited
- In re Parks, 475 B.R. 703 (B.A.P. 9th Cir. 2012) (limits exclusion to prepetition 401(k) contributions from disposable income)
- In re Prigge, 441 B.R. 667 (Bankr. D. Mont. 2010) (IRS guidelines not considered for below-median debtors' expenses)
- In re McCullers, 451 B.R. 498 (Bankr. N.D. Cal. 2011) (addressed 541(b)(7) limited to prepetition contributions)
- In re Seafort, 437 B.R. 204 (B.A.P. 6th Cir. 2010) (debtor may continue or start 401(k) payments depending on context)
- Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (defines current monthly income and look-back concepts for disposable income)