In re Drapeau
485 B.R. 29
Bankr. D. Mass.2013Background
- Debtors filed a Chapter 13 petition on November 14, 2011 and disclosed two 401(k) accounts with balances of $9,571.40 and $2,401.41, claiming exemption under § 522(d)(12).
- Schedule I shows prepetition monthly retirement deductions (Stephen: $400.01 + $246.69; Jennifer: $412.05 + $57.35) and a hardship withdrawal anticipated for the first 6 months of the case.
- Jennifer ceased contributions in August 2011 due to a hardship withdrawal and resumed postpetition in February 2012 at $396/month.
- Stephen made prepetition contributions (~$350/month), took a hardship withdrawal in November 2011, resumed postpetition in June 2012 at $400.01/month.
- Form 22C shows annual income and a disposable income calculation, including a line item for ‘Qualified retirement deductions’ of $365.89 per month.
- Trustee objected to confirmation, arguing postpetition 401(k) contributions are disposable income that must be paid into the plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 541(b)(7) exclude postpetition voluntary retirement contributions from disposable income? | Trustee: contributions are disposable income under 1325(b)(1)(B). | Debtors: § 541(b)(7) excludes postpetition contributions from estate and disposable income when made in good faith. | Yes; postpetition contributions are excluded from disposable income if made in good faith. |
| Is the good faith requirement satisfied in this case? | Trustee argues no good faith basis due to interruption during hardship; postpetition contributions should be considered. | Debtors show history of prepetition contributions and temporary hardship interruptions; good faith established. | Good faith found; contributions may be excluded from disposable income under § 541(b)(7). |
| What is the proper interpretation of § 541(b)(7) in Chapter 13 when § 1306 is involved? | § 541(b)(7) should be interpreted narrowly to exclude only prepetition contributions. | § 1306 incorporates § 541 provisions postpetition; exclusion applies in Chapter 13 as a general proposition. | § 541(b)(7) excludes postpetition voluntary contributions from disposable income in Chapter 13. |
Key Cases Cited
- In re Seafort, 669 F.3d 662 (6th Cir. 2012) (central to debate on postpetition retirement contributions and § 541(b)(7))
- In re Seafort, 437 B.R. 204 (Bankr. D. Mass. 2010) (early views on § 541(b)(7) exclusions and disposable income)
- Gibson, 2009 WL 2868445 (Bankr. D. Idaho 2009) (contexts for retirement deductions and disposability)
- Mati, 390 B.R. 11 (Bankr. D. Mass. 2008) (retirement savings protections under BAPCPA)
- Shelton, 370 B.R. 861 (Bankr. N.D. Ga. 2007) (recognizes 401(k) contributions are not subtracted from current monthly income)
- Parks, 475 B.R. 703 (9th Cir. BAP 2012) (reads § 541(b)(7) to exclude only prepetition contributions; postpetition context discussed)
- Egan, 458 B.R. 836 (Bankr. E.D. Pa. 2011) (treats retirement contributions and good faith under § 1325(a)(3))
- McCullers, 451 B.R. 498 (Bankr. N.D. Cal. 2011) (postpetition contributions and disposable income debate)
- Prigge, 441 B.R. 667 (Bankr. D. Mont. 2010) (postpetition retirement contributions and § 541(b)(7) analysis)
- Seafort, 437 B.R. 209 (Bankr. E.D. Ky. 2009) (discusses § 541(b)(7) placement and postpetition effects)