In re Garza, 575 B.R. 736

Background

Debtors Gilbert Garza and Santos Mesa filed a Chapter 13 petition with six household members and listed monthly income ≈ $8,600 and a $424.52 monthly voluntary 401(k) contribution on Schedule I and the Means Test.
Debtors are above-median-income debtors, so a 60-month applicable commitment period and the § 707(b)(2) means test apply.
Trustee objected to confirmation, arguing (1) Debtors must devote all projected disposable income to unsecured creditors (and the 401(k) contribution should count as disposable income), (2) the Means Test contains calculation errors that understate disposable income, and (3) Debtors improperly treat a Crest rental‑purchase claim as secured in the Plan.
At hearings Debtors admitted the 401(k) contributions began post-petition, explained employer matching, and later amended the Means Test and Plan; Debtors removed a separate Savings Fund contribution.
The court found Debtors’ 401(k) contribution claim credible but identified multiple Means Test errors (vehicle payment averages, tax withholding, improper Crest deduction, and IRS priority amount) that materially understated disposable income.
The court overruled Trustee as to exclusion of post‑petition voluntary 401(k) contributions (if made in good faith and within plan limits) but sustained Trustee’s objections to the Means Test errors and Crest claim treatment, and therefore denied confirmation of the Plan.

Issues

Issue	Trustee's Argument	Debtors' Argument	Held
Whether post‑petition voluntary 401(k) contributions are excluded from "projected disposable income" under § 541(b)(7)/§ 1325(b)	Contributions should be treated as disposable income and used to pay unsecured creditors	§ 541(b)(7) hanging paragraph excludes employer‑withheld retirement contributions from property/disposable income—even post‑petition—and thus may be deducted from projected disposable income	Court held post‑petition voluntary 401(k) contributions may be excluded from projected disposable income if made in good faith and within plan/ERISA limits
Whether § 541(b)(7) exclusion is limited to contributions made pre‑petition	Relies on Seafort/Prigge: exclusions tied to estate at commencement; only pre‑petition withholdings excluded	Relies on Johnson and majority: statute’s plain text lacks a temporal limit; exclusion applies to post‑petition withholdings too	Court rejected Seafort/Prigge temporal limitation and adopted the Johnson approach: no petition‑date limitation in § 541(b)(7)
Whether the Means Test was properly calculated	Trustee identified miscalculations that understate disposable income (vehicle payments, tax withholding, Crest deduction, IRS priority amount)	Debtors amended Means Test but errors remained	Court found multiple Means Test errors; correcting them raises monthly disposable income substantially and precludes confirmation as proposed
Whether the Crest rental‑purchase claim was properly treated as secured in the Plan	Crest’s claim was unsecured; treating it as secured and deducting payments on Means Test is improper	Debtors amended Plan but continued improper treatment in Plan/Means Test	Court held Crest’s agreement is an executory contract requiring assumption or rejection; the claim is unsecured and may not be deducted as a secured payment in the Means Test

Key Cases Cited

Sea‑fort v. Burden, 669 F.3d 662 (6th Cir.) (holds retirement withholdings excluded only to extent made prepetition)
In re Nowlin, 576 F.3d 258 (5th Cir.) (courts may account for reasonably certain future events in projected disposable income)
In re Lively, 717 F.3d 406 (5th Cir.) (discussion of post‑petition property and absolute priority in Chapter 11)
In re Johnson, 346 B.R. 256 (Bankr. S.D. Ga.) (holds § 541(b)(7) excludes postpetition voluntary retirement contributions from disposable income)
Hamilton v. Lanning, 560 U.S. 505 (U.S.) (projected disposable income may account for known or virtually certain postpetition changes)
United States v. Whiting Pools, 462 U.S. 198 (U.S.) (§ 541 defines estate inclusions rather than imposing limiting temporal scope)
In re Drapeau, 485 B.R. 29 (Bankr. D. Mass.) (adopts Johnson approach; § 541(b)(7) excludes postpetition contributions when made in good faith)