515 B.R. 586
Bankr. E.D. Wis.2014Background
- Debtor Beth Ann Read filed a Chapter 13 petition on February 20, 2014; at filing she was not contributing to her employer 401(k).
- On Schedule I she listed a payroll deduction of $124.21 for voluntary retirement contributions although contributions had not yet begun.
- She resumed 401(k) contributions on April 1, 2014 (post‑petition) after the employer’s next enrollment period.
- Debtor’s income is below the state median for her household size.
- Trustee objected to confirmation, arguing post‑petition retirement contributions must be counted as disposable income under 11 U.S.C. § 1325(b), preventing plan confirmation.
- If the Court disallows the 401(k) deduction, about $6,500 more would be available for unsecured creditors over the plan term.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether voluntary post‑petition 401(k) contributions may be excluded from "disposable income" for § 1325(b) calculations | Read: voluntary post‑petition contributions may be deducted (Johnson approach); exclusion applies so long as contributions are made in good faith | Trustee (and Court): only contributions already in existence at petition date are excluded (Seafort/Noll/Prigge line) | Court held post‑petition contributions are not excluded; plan not confirmable because debtor failed to commit all projected disposable income |
Key Cases Cited
- Seafort v. Burden, 669 F.3d 662 (6th Cir. 2012) (Court of Appeals holding only contributions in existence at petition are excluded from disposable income)
- Burden v. Seafort (In re Seafort), 437 B.R. 204 (6th Cir. BAP 2010) (BAP adopting petition‑date fixed point for § 541(b)(7) exclusions)
- Baxter v. Johnson (In re Johnson), 346 B.R. 256 (Bankr. S.D. Ga. 2006) (allows post‑petition voluntary contributions to be deducted subject to good faith)
- In re Prigge, 441 B.R. 667 (Bankr. D. Mont. 2010) (rejects deduction of voluntary 401(k) contributions from disposable income)
- In re McCullers, 451 B.R. 498 (Bankr. N.D. Cal. 2011) (interprets § 541(b)(7) narrowly and emphasizes § 1322(f) loan‑repayment distinction)
- In re Bruce, 484 B.R. 387 (Bankr. W.D. Wash. 2012) (reads § 541(b)(7) to exclude only prepetition contributions; discusses six‑month look‑back for CMI)
Decision: Trustee’s objection sustained; plan cannot be confirmed because Debtor’s post‑petition 401(k) contributions must be treated as disposable income and were not committed to unsecured creditors.