In re Deborah K. SEAFORT and Frederick C. Schuler and Carrie A. Schuler, Debtors.
Beverly M. Burden, Chapter 13 Trustee, Appellant, v. Deborah K. Seafort and Frederick C. Schuler and Carrie A. Schuler, Appellees.
Nos. 09-8062, 09-8063
United States Bankruptcy Appellate Panel of the Sixth Circuit
Decided and Filed: Sept. 14, 2010
437 B.R. 204
MARCI B. McIVOR, Bankruptcy Judge
III. CONCLUSION
For the reasons set forth above, the Court concluded that the Debtor‘s Plan of Reorganization/Liquidation is in the best interests of the creditors. The Debtor demonstrated that the Plan was proposed and executed in good faith. The Court remains satisfied that the Plan will provide the creditors of this cash strapped Debtor with a fair return in a timely fashion. The Objectors, on the other hand, failed to demonstrate that that this Plan and the accompanying auction were tainted by fraud, bad faith, or conspiracy. For these reasons, the Court confirmed the Debtor‘s Plan of Reorganization.
ARGUED: Daniel Hitchcock, Wyatt, Tarrant & Combs, LLP, Lexington, Kentucky, for Appellant. Michael B. Baker, The Baker Firm, PLLC, Florence, Kentucky, for Appellees. ON BRIEF: Daniel Hitchcock, Wyatt, Tarrant & Combs, LLP, Lexington, Kentucky, for Appellant. Michael B. Baker, The Baker Firm, PLLC, Florence, Kentucky, for Appellees.
Before: BOSWELL, McIVOR, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.
OPINION
MARCI B. McIVOR, Bankruptcy Judge.
In these consolidated appeals, Beverly M. Burden, Chapter 13 Trustee (“Trustee“), appeals the bankruptcy court‘s ruling that Debtors may use income which becomes available once 401(k) loans are repaid to commence making contributions to debtors’ 401(k) plans. For the reasons stated in this opinion, the Panel concludes that post-petition income which becomes available after a debtor repays a 401(k) loan must be committed to the chapter 13 plan. Therefore, the bankruptcy court‘s rulings confirming the Debtors’ chapter 13 plans are reversed. The cases are remanded for further proceedings consistent with this opinion.
I. ISSUE ON APPEAL
The issue raised in this appeal is wheth
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court.
The bankruptcy court‘s legal conclusions, including its interpretation of the applicable statutes, are reviewed de novo. Brice Rd. Develops., L.L.C., 392 B.R. at 277: “De novo means that the appellate court determines the law independently of the trial court‘s determination.” Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (6th Cir. BAP 2001) (citations omitted).
The court‘s findings of fact are reviewed under the clearly erroneous standard. Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.2007). “A finding of fact is clearly erroneous ‘when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ ” Id. (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)).
III. FACTS
On November 20, 2008, Deborah Seafort filed a petition for relief under chapter 13 of the Bankruptcy Code. On November 25, 2008, Frederick C. Schuler and Carrie A. Schuler filed a joint petition for relief under chapter 13 of the Bankruptcy Code. At the time the debtors filed their respective petitions for relief, Deborah Seafort and Frederick C. Schuler (hereinafter collectively “Debtors“) were both eligible participants in their respective employers’ ERISA qualified 401(k) retirement plans. The Debtors were not making contributions to their plans at the time they filed for bankruptcy relief; however, each Debtor was repaying a 401(k) loan. Seafort was paying her loan at the rate of $254.71 per month, and Schuler was paying $815.86 per month.
The Debtors each filed a proposed chapter 13 plan which provided for a commitment period of five years. Under their respective proposed plans, the loans would be repaid in full before completion of the plans. The plans proposed to complete repayment of the loans and then continue payroll deductions as 401(k) contributions in the same amount as the loan payments. The plan payments would not, therefore, increase after the loans were paid in full. The Trustee objected to confirmation of both plans asserting that because the Debtors were not making 401(k) contributions as of the commencement of their bankruptcy cases the Debtors must in
The bankruptcy court consolidated the cases to determine whether the Debtors could exclude their proposed 401(k) contributions from projected disposable income which would otherwise be paid into their respective chapter 13 plans. On June 22, 2009, the court issued a memorandum opinion and order concluding that the exclusion was permissible and that the Debtors’ respective chapter 13 plans should be confirmed without modification. On June 30, 2009, the Trustee moved the court to alter or amend its order. The Trustee‘s motion was resolved by entry of an agreed order on October 5, 2009, which required the Debtors to provide certain documentary evidence to the Trustee regarding their 401(k) plans and established certain events which would require amendment of the plans during the applicable commitment period. The Trustee‘s timely appeal followed.
IV. DISCUSSION
Prior to the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA“), a chapter 13 debtor could not make contributions to a 401(k) plan because such funds were considered disposable income which had to be committed to the chapter 13 plan. Harshbarger v. Pees (In re Harshbarger), 66 F.3d 775, 777-78 (6th Cir.1995). For the same reason, chapter 13 debtors were also prohibited from repaying a 401(k) loan during the life of a chapter 13 plan, regardless of any adverse consequences which might result from nonpayment. Id. The adoption of BAPCPA, however, resulted in several changes to the treatment of ERISA qualified employee benefit plans (“Qualified Plans“). In particular, BAPCPA amended
BAPCPA also made changes to
The Trustee makes three arguments in support of her position that the bankrupt
A. Property of the Estate and Exclusions from Property of the Estate
In determining the meaning of a statute, the Panel must first examine the plain language of the statute. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). “If the statutory language is unambiguous, that language must ordinarily be regarded as conclusive.” Reves v. Ernst & Young, 507 U.S. 170, 177, 113 S.Ct. 1163, 1169, 122 L.Ed.2d 525 (1993) (citations omitted). “When a statute is ambiguous, we look to its purpose and may consider the statute‘s policy implications in determining what Congress intended.” Koenig Sporting Goods, Inc. v. Morse Rd. Co. (In re Koenig Sporting Goods, Inc.), 203 F.3d 986, 989 (6th Cir.2000).
Section 541(a)(1) provides:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interest of the debtor in property as of the commencement of the case.
(b) Property of the estate does not include—
. . . .
(7) any amount—
(A) withheld by an employer from the wages of employees for payment as contributions—
(i) to—
(I) an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986;
. . . .
except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325(b)(2)[.]
In this case, the bankruptcy court concluded that because
This Panel‘s construction of
(a) Property of the estate includes, in addition to the property specified in section 541 of this title—
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title whichever occurs first; and
(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title whichever occurs first.
The Panel‘s conclusion that
This Panel‘s construction of
In regard to retirement savings, Congress clearly intended to strike a balance between protecting debtors’ ability to save for their retirement and requiring that debtors pay their creditors the maximum amount they can afford to pay. This balance is best achieved by permitting debtors who are making contributions to a Qualified Plan at the time their case is filed to continue making contributions, while requiring debtors who are not making contributions at the time a case is filed to commit post-petition income which becomes available to the repayment of creditors rather than their own retirement plan. To conclude otherwise encourages the improvident behavior that BAPCPA sought to discourage. If the bankruptcy court is affirmed, debtors who were not contributing to their tax qualified plan and borrowing against their own retirement savings may file bankruptcy, repay themselves, and, once the loan is repaid, start contributing again to their own retirement savings. Allowing debtors to do so would tip the delicate balance struck by BAPCPA impermissibly in favor of debtors. On the other hand, allowing debtors who are making contributions at the commencement of a case to continue making those contributions furthers the goal of encouraging retirement savings. Limiting these protections to contributions in place at the time debtors file their petitions also protects the goal of ensuring that debtors pay creditors the maximum amount debtors can afford to pay.1
The bankruptcy court also erred in confirming the Debtors’ proposed plans because the plans do not comply with the projected disposable income requirement of
The term “projected disposable income” is not defined by the Bankruptcy Code; however, the United States Supreme Court recently concluded that a forward-looking approach should be taken whereby “projected disposable income” is calculated based on both debtor‘s circumstances as of confirmation, and on “changes in the debtor‘s income or expenses that are known or virtually certain at the time of confirmation.” Hamilton v. Lanning, — U.S. —, 130 S.Ct. 2464, 2478, 177 L.Ed.2d 23 (2010); see also Darrohn v. Hildebrand (In re Darrohn), No. 09-5499, 615 F.3d 470 (6th Cir.2010) (relying on Lanning and holding that the bankruptcy court violated
The Panel‘s conclusion that income which becomes available after 401(k) loans are repaid is projected disposable income which must be committed to the repayment of unsecured creditors, is also supported by two recent Court of Appeals’ decisions out of the Fifth and Eighth Circuits. See Lasowski, 575 F.3d 815; Nowlin, 576 F.3d 258. Although these cases were decided prior to the Supreme Court‘s opinion in Hamilton v. Lanning, both courts used the forward-looking approach to determine that funds used to repay 401(k) loans constituted projected disposable income which must be used to pay unsecured creditors once the 401(k) loans were repaid. Because the Supreme Court has adopted the forward-looking approach as the proper method of determining projected disposable income for purposes of
In Nowlin, at the time of filing, the debtor was making contributions to her 401(k) plan in the amount of $1,062.51 and monthly 401(k) loan repayments in the amount of $1,134.79. The 401(k) loan would be repaid after two years. Debtor‘s plan proposed continuing her 401(k) contributions and loan repayments, but did not propose increasing her chapter 13 plan payments by $1,134.79—the amount which would become available after she completed repayment of her 401(k) loan. The trustee objected to debtor‘s proposed plan on the grounds that the plan did not comply with the projected disposable income
The bankruptcy court sustained the trustee‘s objection and denied confirmation of debtor‘s plan holding that the debtor‘s failure to allocate ascertainable projected income to repayment of her creditors made her plan unconfirmable under
The parties in this case dispute whether bankruptcy courts may consider a future event that is reasonably certain to occur at the time of projecting the debtor‘s disposable income. For the reasons stated, we conclude that bankruptcy courts may consider such events and adjust projections of disposable income accordingly. Because Nowlin‘s proposed plan did not include all of her “projected disposable income” in payments to creditors following the repayment of her 401(k) loan, which was reasonably certain to occur on or before the twenty-fourth month of her sixty-month plan, the bankruptcy court properly denied confirmation under
§ 1325(b)(1) .
In Lasowski, the debtor was making both a 401(k) loan payment and a regular 401(k) contribution at the time she filed for bankruptcy. The 401(k) loan would be paid off within the first 13 months of her 60 month plan. The trustee objected to confirmation of the debtor‘s plan contending that debtor‘s failure to commit the additional income resulting from the repayment of her loans to her chapter 13 plan violated
The court in Nowlin thus affirmed a bankruptcy court‘s denial of confirmation when a debtor‘s plan failed to take into account the reasonably certain future termination of the debtor‘s 401(k) loan repayments during the term of the debtor‘s proposed plan. Similarly here, even if Lasowski is correct that it is appropriate for her to exclude the entire $150 she is currently repaying on her 401(k) loans from her disposable income on Form 22C, the bankruptcy court could not ignore, when calculating projected disposable income, that these payments would reduce to $100 per month after six months and end completely after thirteen months. Only by taking into account this fact could the bankruptcy court‘s determination of projected disposable income accurately reflect Lasowski‘s ability to pay her unsecured creditors over the course of her plan. . . . Interpreting “projected disposable income” to recognize the reasonably certain future termination of loan repayments does not require Lasowski to propose a plan that changes the terms of her 401(k) loans. Nor does it deprive her of sufficient funds to repay the loans, for she is free to propose a tiered plan that increases payments to unsecured creditors after the 401(k) payments have ceased.
Id. at 819, 820. The Court of Appeals reversed the bankruptcy court‘s confirmation of debtor‘s plan and remanded the case back to the bankruptcy court.
Pursuant to the Supreme Court case of Hamilton v. Lanning, “projected
The dissent strays far from the narrow ruling of the majority opinion. The dissent repeatedly argues that the majority opinion establishes an “irrebuttable presumption” that a debtor may never commence or increase contributions to a tax qualified retirement plan after confirmation of their Chapter 13 plan. The majority opinion creates no such presumption. The majority ruling only holds that
C. Good Faith
Finally, the Trustee contends that the Debtors have not proposed their plans in good faith because they could pay substantially more into their plans once their 401(k) loans are repaid, but instead are seeking solely to contribute to their 401(k) plans to the detriment of their unsecured creditors. The bankruptcy court made no findings of fact on this issue. In light of the Panel‘s conclusion that the Debtors’ proposed plans should not have been confirmed because they cannot commence making contributions to their 401(k) plans once the loans are repaid, the Panel need not reach the merits of the Trustee‘s appeal on the issue of good faith.
V. CONCLUSION
In conclusion, post-petition income which becomes available after a debtor repays a 401(k) loan is not excluded from property of the estate under
The bankruptcy court is reversed. These cases are remanded for proceedings consistent with this opinion.
MARILYN SHEA-STONUM, Bankruptcy Judge, dissenting.
This case is before the Panel on an appeal of the bankruptcy court‘s confirmation of the Debtors’ chapter 13 plans. Confirmation of plans is governed by
(b)(1) If the trustee . . . objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—
. . . .
(B) the plan provides that all of the debtor‘s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
The basis of the Trustee‘s objection is the assertion that the Debtors’ plans do not apply all of their projected disposable income to the payment of unsecured creditors. However, in framing this question, the Trustee masked her objection as something in addition to the best efforts analysis. Relying on a series of statutory provisions that are not relevant to the best efforts determination, the Trustee urged the Panel to adopt an irrebuttable presumption that chapter 13 debtors who increase or commence contributions to retirement savings plans described in
The assertion in the majority opinion that their holding does not equate to the adoption of an irrebuttable presumption does not withstand examination. The question raised in these appeals, reduced to its most basic form, is whether the Debtors are devoting all of their projected disposable income to fund their chapter 13 plans. The bankruptcy court processed this factual inquiry, determined that the plans in both cases satisfied this statutory requirement, and, no other objections remaining outstanding, confirmed the plans. The majority does not find that the bankruptcy court‘s factual determination was incorrect based upon the Debtors’ various individual circumstances. Rather, the majority processes this factual inquiry by substituting a legal conclusion, i.e., that their reading of the Bankruptcy Code prohibits per se chapter 13 debtors from increasing Qualified Contributions over the life of their plans.
Resolution of this appeal should turn on the interpretation of the phrase “projected disposable income,” which defines the “best efforts” test. The Trustee instead initially framed the issue in this case to be about property of the estate, arguing from a variety of Code sections, including
Since the Panel heard argument in this case, the Supreme Court decided Hamilton v. Lanning (In re Lanning), — U.S. —, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), in which it determined that courts are to take a “forward-looking approach,” rather than a mechanical approach, to the calculation of projected disposable income. Id. at 2475, and the Sixth Circuit decided the direct appeal in Darrohn v. Hildebrand (In re Darrohn), No. 09-5499, 615 F.3d 470 (6th Cir.2010), in which it applied Lanning to both the revenue and expense factors in the projected disposable income calculation. As addressed in Lanning and Darrohn, the starting point for analyzing what is projected disposable income in any chapter 13 case is identified in
(2) For purposes of this subsection, the term ‘disposable income’ means current monthly income received by the debtor . . . . less amounts reasonably necessary to be expended—
(A)(i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed;
. . . .
(b) Property of the estate does not include—
. . . .
(7) any amount—
(A) withheld by an employer from the wages of employees for payment as contributions—
(i) to—
[three different forms of retirement savings plans that qualify for tax deferment under the Internal Revenue Code of 1986]
except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325(b)(2)[.]
Indeed, from the time BAPCPA was enacted five years ago until the majority‘s opinion in these two appeals, no court had adopted the interpretation advocated by the Trustee. The Trustee‘s interpretation strays far from the applicable Code provisions and reaches a harsh and uneven result. Adoption of that interpretation by the majority ignores the proof that these amendments provide of Congress’ determination that retirement savings generally are reasonably necessary for consumer debtors.3 As discussed infra, the majority‘s assertion that the Fifth and Eighth Circuits have interpreted
The proper analysis of this issue is straightforward. Disposable income does not include any amount withheld as a Qualified Contribution. This exception from disposable income is found in the hanging phrase, which, by its reference to
The majority begins its analysis with
The majority then reaches the question of disposable income and cites two purportedly supporting cases. However, neither of these cases support the majority‘s holding. Although many cases (see supra note 2) have similar facts to the cases in this appeal, there are no cases that have reached the conclusion that a debtor may make Qualified Contributions during the course of a chapter 13 bankruptcy only to the extent that such contributions were ongoing at the time the petition was filed.
In Nowlin v. Peake (In re Nowlin), 576 F.3d 258 (5th Cir.2009) (cited in Lanning, 130 S.Ct. at 2474, 2475). However, the Fifth Circuit did not disturb the bankruptcy court‘s holding that “after Nowlin had paid off her 401(k) loan, she could contribute an additional $187.49 to her 401(k) plan, which would bring her monthly 401(k) contributions to the maximum of $1,250.00 per month.” Nowlin, 576 F.3d at 261 (emphasis added). Rather, the Fifth Circuit agreed with the district and bankruptcy courts’ conclusion that the additional amounts that would be available to the debtor after repaying her 401(k) loan, beyond what was used to maximize her 401(k) contributions, should be included in projected disposable income that must be distributed to unsecured creditors. Nowlin is inconsistent with the majority‘s position. In Nowlin, the debtor was permitted to increase her Qualified Contribution to the maximum allowable under her employer‘s plan. It was only amounts in excess of that payment that were considered projected disposable income and required to become part of the chapter 13 payment after the 401(k) loan was repaid. Id.
Similarly, in McCarty v. Lasowski (In re Lasowski), 575 F.3d 815, 817-18 (8th Cir.2009). In that case, the record is silent as to whether or not the debtor proposed to maintain, commence, or increase her Qualified Contributions to a Qualified Plan during the course of her bankruptcy. Id. The Eighth Circuit reached only the question of whether the “calculation of a debtor‘s projected disposable income can take into account changes in the debtor‘s financial circumstances that are reasonably certain to occur during the term of the debtor‘s proposed plan.” Id. at 819. That question was resolved by the Supreme Court‘s holding in Lanning and is not at issue in this case. Lasowski does not support the majority‘s irrebuttable presumption that a debtor may not use income available after repayment of a 401(k) loan to commence or increase Qualified Contributions.
The Supreme Court held in Lanning that “the court may account for changes in the debtor‘s income or expenses that are known or virtually certain at the time of confirmation.” 130 S.Ct. at 2478 (emphasis added). Application of Lanning does call for consideration of how to deploy the portion of the debtors’ wages once the 401(k) loans have been repaid. The trial court determined, implicitly at least, that the Debtors’ proposed Qualified Contributions are necessary to the support of Debtors or their dependants. The bankruptcy court therefore correctly took into account fluctuations in the Debtors’ disposable income resulting from the completion of the 401(k) loan repayments and the changes to the Debtors’ Qualified Contributions. The majority does not defer to the trial court‘s factual determination, not only in these two cases, but would substitute its across the board determination in all future cases.
The language now the source of dispute in these cases was added to the Bankruptcy Code as part of BAPCPA. The majority emphasizes Congress’ intention to ensure “debtors repay creditors the maximum they can afford,” (H.R.Rep. No. 109-31, pt. 1, at 2 (2005), U.S.Code Cong. & Admin. News 2005, pp. 88, 89) in support of its holding, claiming its decision mirrors the clear legislative intent of BAPCPA. It is an unfortunate fact that there exists virtually no real legislative history for the detailed provisions of BAPCPA. See Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr.L.J. 485 (2005).
Because the plain meaning of the statute unambiguously provides that Qualified Contributions are excluded from disposable income, as discussed above, there is no need to consider legislative history, were any such history available for the provisions under consideration. Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 1947, 147 L.Ed.2d 1 (2000) (“[W]hen the statute‘s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.“) (internal quotation marks omitted). Moreover, the legislative history does not evince congressional intent on this specific issue. The language of the statute shows that Congress appears to have balanced the competing policy priorities of (1) ensuring that unsecured creditors receive the most debtors can afford to pay and (2) promoting participation in Qualified Plans. As BAPCPA determined how that was to be done, i.e., by allowing chapter 13 debtors to exclude Qualified Contributions from disposable income, it is not appropriate for the majority to determine that Congress has not struck the right balance between competing policies.6 As succinctly stated elsewhere:
Congressional intent on this point is sufficiently plain and is a matter of policy; as such, it does not lead to an absurd result. The goal to expand retirement savings is clear and the result is reasonable. Accordingly, amounts withheld from wages for contribution to a qualified retirement plan are not included in
§ 1325(b)(1) ‘s calculation of projected disposable income.
In re Shelton, 370 B.R. at 866.
The majority concludes that to allow debtors to start or to increase Qualified Contributions after repaying a 401(k) loan, but while still in the chapter 13 case, would tip “the delicate balance struck by BAPCPA impermissibly in favor of debtors.” This assertion suggests that chapter 13 debtors would use the exclusion created by
Abuse of the bankruptcy process is prohibited by other provisions of the Bankruptcy Code and would not be abetted by any ruling this Panel makes in these cases. See
As other cases illustrate, debtors frequently have unusual circumstances either before or after their bankruptcy cases begin. The totality of the circumstances approach to the good faith inquiry is a more effective way of balancing two congressional purposes—to prevent abuse and to encourage retirement savings—than is the Trustee‘s irrebuttable presumption that the majority now adopts.
In In re Lavin, for example, involved a debtor who had at one time made large Qualified Contributions, but reduced them as his debts rose and he struggled to pay creditors. He eventually stopped making the contributions and, after losing his job, filed for bankruptcy. He was able to find employment post-petition and began making very large contributions (19% of his salary) because he suffered from a medical condition that would force him to retire early due to disability. Lavin, 424 B.R. at 561-62. Under the majority‘s holding, this debtor would not be able to make any Qualified Contributions during the life of his plan because he was unemployed at the moment of his bankruptcy filing and consequently not contributing to a Qualified Plan. The bankruptcy court would have no discretion to make an exception to this rule that the Trustee and the majority have conjured. Indeed, all debtors whose bankruptcy filings had been precipitated by an ongoing job loss would be absolutely prohibited from making Qualified Contributions from their post-petition employment wages, even if they had been making those contributions, or had not been eligible to make contributions, at their prior employment.
Similarly, in In re Jones, the debtors started making Qualified Contributions to the wife‘s Qualified Plan after filing. The
Both Debtors are fast approaching retirement age, and also have medical conditions that might hasten their retirements. After Debtors filed for bankruptcy, the Wife‘s employer changed its retirement plan from one where it made contributions even if the Wife did not to one where it would match the Wife‘s contributions but otherwise make none.
Jones, No. 07-10902, 2008 WL 4447041, at *5 (Bankr.D.Kan. Sept. 26, 2008). Under the majority‘s interpretation, these debtors’ plans could not be confirmed. These cases do not evidence the abuse that Congress sought to eradicate with BAPCPA. See also In re Gibson, No. 09-01196, 2009 WL 2868445, at *3 (Bankr.D.Idaho Aug.31, 2009) (comparing factual circumstances relevant to debtors’ good faith in various cases involving post-petition increase or commencement of Qualified Contributions).
The suggestion that “[t]here is nothing in the majority opinion that would prevent a debtor from making an argument after confirmation that a change in debtor‘s circumstances justified committing income to a Qualified Plan” ignores several obvious points. See supra. First, that is precisely the type of factual inquiry that is appropriately addressed in the confirmation process pursuant to
The majority‘s rule, while preventing confirmation of good-faith debtors’ plans, would not be an effective method of eradicating abuse. High-income debtors who had made large Qualified Contributions as their debts mounted would be able to continue such payments during their bankruptcy regardless of whether they had any compelling reason to make large contributions. On the other hand, debtors who had reduced or stopped their Qualified Contributions in an attempt to pay creditors and avoid bankruptcy, like the debtor in Lavin, would be prohibited from contributing—truly a part of the “fresh start” for older debtors nearing retirement—until after they had completed their plans. See, e.g., In re Devilliers, 358 B.R. 849, 865 (Bankr.E.D.La.2007) (“Congress has determined that contributions to a qualified retirement account are, by their very nature, reasonable and necessary. By providing for a debtor‘s eventual retirement, retirement contributions become part of debtor‘s fresh start.“). The majority‘s ruling also offers no accommodation to debtors for whom changed circumstances make new or increased post-petition Qualified Contributions reasonable and necessary.
The majority‘s fear of growing gamesmanship presumes that courts, trustees, and creditors are unable to recognize unfair manipulation of the bankruptcy system. It replaces the bankruptcy courts’ discretion and judgment with an irrebuttable presumption that is not articulated in the Bankruptcy Code. Furthermore, it unfairly discriminates against low-income
In fact, the good faith analysis that courts already apply to confirmation of plans would apply well to situations like those presented here. Though Qualified Contributions are not part of disposable income, they are still relevant to good faith:
While it is apparent that Congress removed certain streams of income from being considered disposable income, it does not necessarily follow that Congress intended to handicap the courts’ good faith inquiries or unintentionally create a proverbial “loophole” . . . . BAPCPA expressly limited the application of
§ 541(b)(7) to one particular paragraph,§ 1325(b)(2) . . . . Had Congress sought to soften the good faith requirement, a statement to that effect is conspicuously absent.
Shelton, 370 B.R. at 867; see also Jones, 2008 WL 4447041, at *4 (weighing debtors’ post-petition commencement of retirement savings as a factor in analysis of good faith); but see Johnson, 346 B.R. at 263 (“Debtors are not required to contribute [retirement savings contributions] to their Chapter 13 plans. Consequently, in determining good faith under
- Debtors’ proximity to retirement, by virtue of age or medical condition;
- Debtors’ prior retirement savings and whether amounts already saved could be sufficient to support the debtors after retirement;
- The likely cost of living during debtors’ retirement, considering medical conditions and other relevant concerns;
- Whether debtors made contributions previously and decreased them due to job loss, reduced income, or attempts to pay creditors;
- Whether debtors are contributing amounts in excess of what their employers will match, if an employer offers matching contributions, e.g., whether requiring debtors to forego some of their contributions would essentially force them to forego an employer-sponsored benefit;
- Whether debtors have recently experienced a change in circumstances relevant to their retirement savings (new options from employer, new employer plan, new employer, sudden decrease in value of retirement savings, etc.); and
- The relative percentages of debtors’ income being contributed to retirement savings and payments to creditors.
However, it does not appear that the issue of good faith is properly before the Panel in these cases.
Good Faith
The Trustee asserts that the Debtors have not proposed their plans in good faith, but this argument was raised for the first time on appeal. Generally, issues raised for the first time on appeal are not properly determined by the appellate court. Lockhart v. Napolitano, 573 F.3d 251, 261 (6th Cir.2009). The Trustee claims that the following language, in the objections to confirmation, makes clear reference to Debtors’ good faith:
In essence, the debtors are proposing that unsecured creditors chip in some $9,790.00 for Mr. Schuler‘s retirement. The plan must be amended to show that plan payments will increase by the full amount of the [401(k)] loan payment in the month after the loan is paid off. Schedule I reflects a deduction for a 401K/retirement loan payment. The loan will be paid in full in June 2010. The plan must be amended to show that plan payments will increase by $255 per month starting in July 2010.
These statements most directly reference the calculation of disposable income and do not mention good faith. This issue was therefore not preserved in these appeals.
Appellate courts may consider arguments first presented on appeal in “exceptional cases or particular circumstances, or when the rule [against doing so] would produce a plain miscarriage of justice.” Foster v. Barilow, 6 F.3d 405, 407 (6th Cir.1993) (cited in McFarland v. Henderson, 307 F.3d 402, 407 (6th Cir. 2002)). The most common instance is
For these reasons, I would affirm the ruling of the bankruptcy court.
Notes
In regard to retirement savings, Congress clearly intended to strike a balance between protecting debtors’ ability to save for their retirement, and requiring that debtors pay their creditors the maximum amount they can afford to pay. This balance is best achieved by permitting debtors who are making contributions to a 401(k) plan at the time their case is filed, to continue making contributions, while requiring debtors who are not making contributions at the time a case is filed to commit post-petition income which becomes available, to the repayment of creditors rather than their own retirement plan. See supra (emphasis added).