496 B.R. 615
Bankr. D. Utah2013Background
- Debtors Robert and JoAnn Jensen filed Chapter 13 on Oct. 31, 2012; JoAnn’s biweekly contributions to a § 457 plan averaged $541.67/month and began Aug. 6, 2012 (within three months before petition).
- Form 22C claimed the § 457 payroll deduction on Line 55, producing a negative monthly disposable income and a proposed 60‑month plan with modest distributions to unsecured creditors (~11%).
- Chapter 13 Trustee objected, arguing the contributions improperly reduced disposable income and that the petition may not have been filed in good faith to maximize Form 22C deductions.
- Key statutory provisions at issue: 11 U.S.C. §§ 541(b)(7), 1322(f), and 1325(b)(2) as amended by BAPCPA; interplay between § 541(b)(7) hanging paragraph and the Chapter 13 disposable income rules.
- Court heard argument and reviewed authorities; treated as issue of first impression in that district whether voluntary retirement contributions constitute disposable income.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether voluntary contributions to a qualified retirement plan constitute "disposable income" under §1325(b)(2) | Jensen: §541(b)(7) excludes such contributions from disposable income; contributions made at petition may be continued | Trustee: §541(b)(7) should not reduce post‑petition disposable income; debtors may have started contributions to game the means test | Held: Contributions being made at time of petition are not disposable income and may continue during the plan (adopting Seafort approach) |
| Whether the plan was proposed in good faith given recent start of contributions and low unsecured dividend | Jensen: following Code allows the deduction; motivations (family death, Social Security concerns) were legitimate | Trustee: timing and size suggest motive to minimize creditor payments; risk debtors will stop contributions post‑confirmation | Held: Plan proposed in good faith on these facts; no abuse found, but Trustee may monitor and move to modify if contributions cease (W‑2s to be provided annually) |
Key Cases Cited
- Seafort v. Burden, 669 F.3d 662 (6th Cir. 2012) (only voluntary retirement contributions being made at petition are excluded from disposable income)
- Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314 (10th Cir. 2012) (Social Security income exclusion from disposable income; exclusion consistent with good faith)
- Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) (totality‑of‑circumstances test for Chapter 13 good faith; enumerated factors)
- Baxter v. Johnson (In re Johnson), 346 B.R. 256 (Bankr. S.D. Ga. 2006) (adopting view that voluntary retirement contributions may be excluded from disposable income)