Deborah Seafort v. Beverly Burden
669 F.3d 662
| 6th Cir. | 2012Background
- Debtors Seafort and Schuler filed Chapter 13 petitions in the Eastern District of Kentucky; both were in ERISA 401(k) plans and were repaying 401(k) loans at filing.
- Trustee objected to excluding post-petition 401(k) contributions from property of the estate and from disposable income.
- Debtors proposed plans to resume 401(k) contributions after loan repayment, rather than increasing payments to unsecured creditors.
- Bankruptcy court held post-petition 401(k) contributions could be excluded under 541(b)(7) and 1306; treated as ongoing but funded by the same income stream as loan repayments.
- Bankruptcy Appellate Panel affirmed the exclusion, but the Sixth Circuit reversed, adopting a Prigge/McCullers interpretation that post-petition contributions are not excluded and post-petition income after loan repayment must be turned to unsecured creditors.
- Court confirms the plan and holds that post-loan-repayment income is projected disposable income to be distributed to creditors and may not fund voluntary 401(k) contributions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post-petition income after 401(k) loan repayment is projected disposable income. | Debtors urge exclusion under 541(b)(7) permitting post-petition contributions. | Trustee/Bankruptcy Panel argue exclusion limited to pre-petition contributions (541(b)(7) context). | Post-petition income after loan repayment is projected disposable income to be paid to creditors. |
| Proper interpretation of 541(b)(7) and its relation to 541(a)(1) and 1306 in Chapter 13. | Debtors contend broader exclusion for post-petition contributions. | Majority view (Prigge/McCullers) limits exclusion to pre-petition contributions. | Prigge/McCullers interpretation adopted; post-petition contributions are not excluded. |
| Scope of 541(b)(7) as it interacts with §1322(f) and the means test for disposable income. | Contributions shielded from disposable income under 541(b)(7). | Exclusion applies only to pre-petition contributions; post-petition income must fund the plan. | Means that post-petition income after loan repayment must be applied to plan payments. |
Key Cases Cited
- Baud v. Carroll, 634 F.3d 327 (6th Cir. 2011) (means-testing framework; policy relevance to creditor maximization)
- Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716 (U.S. 2011) (legislative purpose of BAPCPA; income/expense screening)
- Lanning v. Hamilton, 130 S. Ct. 2464 (U.S. 2010) (projected disposable income may account for known changes at confirmation)
- In re McCullers, 451 B.R. 498 (Bankr. N.D. Cal. 2011) (Prigge/McCullers interpretation favored; §541(b)(7) excludes pre-petition contributions only)
- In re Prigge, 441 B.R. 667 (Bankr. D. Mont. 2010) (narrow reading of §541(b)(7); excludes pre-petition contributions only)