In Re Egan
458 B.R. 836
Bankr. E.D. Pa.2011Background
- Debtors filed a joint Chapter 13 petition on January 13, 2010 and proposed a plan funded by their current monthly income.
- Form B22C shows disposable income of $514.07, with plan payments of $514.07 monthly for 60 months.
- A single secured claim exists (FMFCU Mortgage) with ongoing payments outside the plan; unsecured claims total $83,135.
- Debtors previously borrowed from their 401(k) plans; they propose increasing post-petition 401(k) contributions after loan repayments.
- Trustee objects to treating post-petition 401(k) contributions as disposable income and to good faith; Debtors argue Hamilton forward-looking means apply.
- Court must decide if §541(b)(7) permits increases in post-petition retirement contributions and if the plan accounts for all projected disposable income.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can post-petition 401(k) contributions be increased under §541(b)(7)? | Trustee argues contributions are fixed as of petition date. | Debtors contend §541(b)(7) excludes such contributions from estate; may increase post-petition. | No per se rule; contributions may be increased if consistent with forward-looking means test and good faith. |
| Must the plan account for completion of 401(k) loan repayments under Hamilton? | Plan must reflect entire projected disposable income; increase in contributions could be offset. | Forward-looking approach allows adjustments for known changes; not restricted to petition-date amounts. | Plan must account for loan repayment completion; may adjust contributions consistent with Hamilton. |
| Is there bad faith in increasing post-petition 401(k) contributions? | Increases could be viewed as gaming BAPCPA to shrink disposable income. | Couples aging near retirement and matching benefits weigh in favor good faith; no independent bad faith shown. | Bad faith not established; increases not, by itself, demonstrate lack of good faith. |
| Does the plan have to allocate entirety of projected disposable income under 11 U.S.C. §1325(b)? | Plan must allocate all projected disposable income to unsecured creditors. | Forward-looking allowances permit adjustments for certain post-petition changes. | Plan appropriately allocates projected disposable income when accounting for post-petition changes; not rejected on this basis. |
Key Cases Cited
- Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (forward-looking approach to projected disposable income; changes known or virtually certain permitted)
- Ransom v. FIA Card Services, 131 S. Ct. 716 (2011) (means-test framework; dictates accounting for applicable expenses; supports forward-looking deductions)
- Devilliers, In re, 358 B.R. 849 (2007) (retirement contributions are excluded from disposable income; relevance to §541(b)(7))
- Burden v. Seafort (In re Seafort), 437 B.R. 204 (2010) (limits on retirement contributions based on petition-date amount; BAP analysis)
- Mati, In re, 390 B.R. 11 (2008) (retirement savings policy in BAPCPA; contributions outside estate)
- Taylor, In re Sapir, 243 F.3d 124 (2d Cir. 2001) (considerations for retirement contributions in good faith balancing policy)
- Johnson, In re Baxter, 346 B.R. 256 (Bankr. S.D. Ga. 2006) (retirement contributions may be put in good faith up to plan limits)