484 B.R. 387
Bankr. W.D. Wash.2012Background
- Bruce filed Chapter 7 on 2/28/2011 and converted to Chapter 13 on 8/6/2012.
- Form B22C shows Bruce's CMI and household income; Bruce’s and spouse’s combined CMI is around $5,300 monthly.
- Bruce’s Amended Schedule I includes 401(k) contributions ($160.33) and 401(k) loan repayment ($32.50); original Schedule I listed $195 401(k) contributions.
- Bruce’s 401(k) balance is about $13,600; plan proposes $900 monthly to Trustee for 36 months for secured/ administrative claims.
- Trustee objected, arguing 401(k) contributions are disposable income; Parks (9th Cir. BAP) governs whether 401(k) contributions are includable.
- Court holds 401(k) contributions are permissible for below-median debtors and that six-month look-back 401(k) contributions are excluded from CMI and disposable income under 541(b)(7)(A) and §1325(b)(2).
- Trustee to obtain an order confirming the plan after Bruce amends to remove the post-loan payoff increase in contributions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are 401(k) contributions reasonably necessary under §1325(b)(2)? | Bruce | Parks governs means test; 401(k) not necessary. | Yes; reasonably necessary for below-median Debtor. |
| Does Parks apply to below-median debtors or only above-median? | Bruce challenges Parks as inapplicable. | Parks should apply; 1325(b)(2) not tied to §707(b)(2) for below-median. | Parks does not govern below-median; apply §1325(b)(2) standard. |
| Should six-month look-back 401(k) contributions be excluded from CMI/disposable income? | Bruce; exclude six-month contributions under 541(b)(7)(A). | Trustee contends Parks limits exclusions. | Contributions during look-back period are excluded from CMI and disposable income. |
| What is the effect of prepetition vs postpetition 401(k) contributions on disposable income? | Prepetition/postpetition distinction under 541(b)(7)(A) is limited. | Parks restricts to prepetition contributions. | 6-month look-back contributions are not disposable income; prepetition contributions excluded from property of the estate and disposable income. |
Key Cases Cited
- In re Parks, 475 B.R. 703 (9th Cir. BAP 2012) (exclusion applies to prepetition 401(k) contributions from property of the estate; not postpetition)
- In re Prigge, 441 B.R. 667 (Bankr. Mont. 2010) (IRS guidelines; 401(k) contributions not necessary expenses under means test)
- In re McCullers, 451 B.R. 498 (Bankr. N.D. Cal. 2011) (limited reading of 541(b)(7) to prepetition contributions; disputes over postpetition treatment)
- In re Seafort, 437 B.R. 204 (Bankr. W.D. 6th Cir. BAP 2010) (discusses exclusion scope for 401(k) loans and contributions)
- Seafort v. Burden, 669 F.3d 662 (6th Cir. 2012) (recognizes limits of 401(k) contribution treatment in disposable income)