In Re McCullers
451 B.R. 498
| Bankr. N.D. Cal. | 2011Background
- Debtor is a 43-year-old single man with no dependents, earning about $9,806 per month.
- As of petition, Debtor owed $23,571 on a car loan, $27,000 to ex-wife, $71,461 to general unsecured creditors, and $23,780 to his 401(k) plan.
- Debtor proposed a Chapter 13 plan to pay $200/month for 60 months, with unsecured creditors receiving about 11% of claims, and repayment of the 401(k) loan outside the plan.
- Trustee objected to confirmation, arguing the plan did not allocate all projected disposable income to creditors.
- Debtor claimed a $1,921/month deduction for 401(k) contributions and loan repayment in B22C; the loan would be repaid within plan term, affecting future disposable income.
- Debtor’s contributions are voluntary and not employer-mandated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 541(b)(7) allows voluntary postpetition retirement contributions deduction | Trustee: 541(b)(7) excludes only prepetition contributions from property of the estate and disposable income | Goff McCullers: 541(b)(7) authorizes postpetition contributions up to plan-appropriate limits | No; 541(b)(7) does not authorize such a deduction for voluntary postpetition contributions |
| How loan repayments from the 401(k) affect disposable income when the loan is repaid | Trustee: upon loan repayment, postrepayment income becomes disposable and must go to creditors | Debtor: not explicitly argued here; focus is on 541(b)(7) deduction | Disposable income must be adjusted when the loan is repaid; the plan did not provide for this adjustment |
| Which precedent governs 541(b)(7) interpretation (Seafort/Prigge vs Johnson decisions) | Trustee aligned with Seafort/Prigge limiting exclusion to prepetition contributions | Debtor arguments emphasize Johnson line that allows broader postpetition contributions | Seafort and Prigge are more persuasive; 541(b)(7) excludes only prepetition contributions |
| Overall effect of 541(b)(7) on the plan confirmation and contributions | Trustee: plan must reflect only disposable income after excluding prepetition contributions | N/A (policy discussion) | Trustee’s objection sustained; Debtor cannot contribute postpetition voluntarily; amend plan |
Key Cases Cited
- Burden v. Seafort (In re Seafort), 437 B.R. 204 (6th Cir. BAP 2010) (excludes prepetition contributions from disposable income under 541(b)(7))
- In re Prigge, 441 B.R. 667 (Bankr.D.Mont. 2010) (restricts exclusion to prepetition with no broad postpetition deduction)
- In re Lasowski, 575 F.3d 815 (8th Cir. 2009) (postpetition loan repayment considerations in disposable income)
- Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716 (2011) (requires consideration of changes in financial circumstances during plan)
- Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (provides framework for changes in circumstances during plan)
- Egebjerg v. Anderson, 574 F.3d 1045 (9th Cir. 2009) (mandatory vs voluntary retirement contributions under IRS guidelines)