MEMORANDUM OPINION
This сase comes before the Court on: (a) the Chapter 13 Trustee’s Objections to the Debtor’s claim of exemptions (Amended Schedule C); and (b) the Chapter 13 Trustee’s Objections to the Debtor’s Amended Plan. The Court sustains the Trustee’s Objections to the Debtor’s claim of exemptions and overrules the Trustee’s Objections to the Debtor’s Amended Plan.
Findings of Fact
The following facts are not genuinely in ' dispute:
A. The Debtor’s Bankruptcy Filing and His Initial Chapter 13 Plan.
1.The Debtor filed a Voluntary Petition under Chapter 13 with this Court on December 31, 2015. Docket No. 1. His income is above-median. Docket No. 10 (Official Forms 122C-1,122C-2).
2. The Debtor filed his initial Chapter 13 Plan on January 14, 2016. Docket No. 11. The Debtor attached а copy of his Schedule I to the Plan, under which he deducted $0.00 for voluntary contributions to a retirement plan, and $338.37 for required repayments on two retirement fund loans. Id. at Schedule I, Lines 5c, 5d.
3. The Debtor’s initial Chapter 13 Plan was denied confirmation. Docket No. 20.
B. The Debtor’s Amended Chapter 13 Plan.
4. On March 31, 2016, the Debtor filed an Amended Chapter 13 Plan. Docket No. 22. The Amended Plan called for payments of $1,250.00 per month for 6 months and then $810.00 per month for 54 months, for total plan funding of $51,240.00. Id. at ¶ 1. This, according to the Amended Plan, will result in a distribution to unsecured creditors of approximately 13% of their allowed claims. Id. at ¶ 4.
5. At the same time, the Debtor filed Amended Schedules B and C. Docket No. 23. In his Amended Schedule B, the Debtor identified $804.00 in “future income from 1/21/2016-5/11/2016 from a retirement loan being paid off on 1/20/2016.” Id. at .Amended Schedule B, ¶ 16. In his Amended Schedule C, the Debtor claimed this $804.00 as exempt pursuant to Va. Code § 34-4, Virginia’s wildcard exemption statute. Id. at Schedule C, ¶2; see also Va.Code Ann. § 34-4 (West 2016).
' 6. One of the Debtor’s retirement fund loans was paid in full in January 2016. Accordingly, the Debtor attached an Amended Schedule I to his Amended Plan, under which the Debtor indicated that he
7. The Trustee filed an Objection to сonfirmation of the Debtor’s Amended Chapter 13 Plan, on the grounds of good faith and disposable income. Docket No. 24
8. The Trustee also filed an Objection to the Debtor’s Amended Schedule C. Docket No. 25.
C. The May 12, 2016, Hearing.
9. The Court held a hearing on May 12, 2016. At the hearing, Debtor’s counsel argued that the Debtor was entitled to exempt the income represented by the savings in not having to pay his retirement fund loan under either Va.Code § 34-29 (which allows an exemption from garnishment of 75% of wages for non-support debts) or Va.Code § 34-4 (the wildcard exemption, which allows an exemption of up to $5,000 in value — $10,000 for those over 65 — plus $500 for eаch dependent). See Va.Code Ann. § 34-29 (West 2016); Va.Code Ann. § 34-4 (West2016).
10. Debtor’s counsel represented to the Court that the Debtor’s employer refused to allow him to make voluntary contributions to his retirement plan because he had taken out two hardship loans under the same plan. Debtor’s counsel also represented that the proposed $268.62 per month in voluntary contributions were about one-third of what the Debtor legally would be entitled to contribute to his retirement plan, outside of bankruptcy. These representations were not challenged by the Chapter 13 Trustee, and the Court accepts them.
11.The Cоurt ruled from the bench that it would sustain the Trustee’s Objection to the Debtor’s claim of exemption under Va.Code § 34-29, on the ground that such a claim of exemption was inconsistent with Bankruptcy Code § 1306(a)(2), which defines property of the estate to include “earnings from services performed by the debtor after the commencement of the case.” 11 U.S.C. § 1306; Docket No. 29 (Order Sustaining Trustee’s Objection in Part). The Court took under advisement: (a) the Trustee’s Objection to the Debtor’s claim of exemption under Va. Code § 34-4; and (b) the Trustee’s Objection to confirmation of the Debtor’s Amended Plan. Id.
Conclusions of Law
The Court has jurisdiction over this matter рursuant to 28 U.S.C. § 1334 and the Order of Reference entered by the District Court for this District on August 15, 1984. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(B) (“allowance or disallowance of ... exemptions from property of the estate”), and (L) (confirmation of plans).
I. The Debtor’s Claim of Exemption in Post-Petition Income.
Section 1306(a)(2) provides that proper-. ty of the estate includes, in addition to the property specified in Section 541, “earnings from services performed by the debt- or after the commencement of the case ...” 11 U.S.C. § 1306(a)(2). Section 1325(b) of the Code requires that, if the trustee or the holder of an allowed unsecured claim objects, the Debtor must ei
The Trustee argues that the Debt- or’s claim of exemption under Va.Code § 34-4 cannоt be allowed because the Debtor had not yet earned the income as of the date of the petition. This, however, is not a bar to a claim of exemptions. In re Walz,
Rather, the Debtor’s claim of exemption cannot be allowed under Va.Code § 34-4 for the same reason that the Court denied the Debtor’s claim of exemption under Va.Code § 34-29 — a claim of exemption in post-petition wages is fundamentally inconsistent with the structure of Chapter 13, which requires a debtor to devote all of his or her disposable income to the Chapter 13 Plan, subject only to certain statutory exceptions. See Mort Ranta v. Gorman,
Any claim of exemption for post-petition wages — whether under the Virginia wage exemption statute (Va.Code § 34-29) or under the Virginia wildcard exemption statute (Va.Code § 34-4) — is fundamentally inconsistent with the requirement that the debtor devote all of his or her disposable income to the Chapter 13 plan. See Perez v. Campbell,
The Court will sustain the Trustee’s Objection to the Debtor’s Amended Schedule C insofar as the Debtor claims an exemption in his post-petition wages.
II. The Trustee’s Disposable Income and Good Faith Objections.
The second question presented is whether the Debtor is entitled to make voluntary contributions to his retirement plan, now that he has completed the payments on one of his retirement plan loans, where the voluntary contributions will be in the same monthly amount as his former loan payments. More specifically, the questions are: (a) whether the Debtor’s voluntary retirement contributions may be deducted from his disposable income for purposes of the disposable income test under Bankruptcy Code Section 1325(b); and (b) whether such deductions are made in good faith. The Court concludes that Section 541(b)(7) of the Code allows the Debt- or to deduct voluntary retirement plan contributions from his disposable income, and that the Debtor is proceeding in good faith.
Section 541 of the Bankruptcy Code defines property of the estate for all Chapters. In addition, under Chapter 13 unlike in Chapter 7, the Debtor’s post-petition wages and compensation are included in property of the estate. 11 U.S.C. § 1306(a)(2) (“Property of the estate includes, in addition to the property specified in section 541 of this title ... ”) As stated by the Fourth Circuit:
Congress has harmonized these two statutes for us. With Section 541, Congress established a general definition for bankruptcy estates. With Section 1306, it then expanded on that definition specifiсally for purposes of Chapter 13 cases. Thus, “Section 1306 broadens the definition of property of the estate for chapter 13 purposes to include all property acquired and all earnings from services performed by the debtor after the commencement of the case.” S. Rep. No. 95-989, at 140-41 (1978).
Carroll v, Logan,
Bankruptcy Code Section 1325(b) requires that the debtor either pay all unsecured claims in full or devote all of his or her disposable income to the plan. Section 1325(b)(3) requires, for above-median debtors, that the Court look to the means test of Section 707(b). 11 U.S.C. § 1325(b)(3). Section 707(b), in turn refers to the debt- or’s “сurrent monthly income,” which is a defined term in the Code. 11 U.S.C. § 707(b). Section 101(10A) defines “cur
In 2005, Congress added to the Code two provisions of relevance here. First, Congress enacted Section 1322(f), which excludes from the disposable income calculus any amounts required to pay loans to a qualified retirement plan. 11 U.S.C. § 1322(f). The Trustee does not contest that any retirement plan loan repayments that the Debtor is required to make post-petition are excluded from the calculаtion of the Debtor’s monthly disposable income.
Second, Congress added Section 541(b)(7), which excludes from property of the estate:
(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;
(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;
except that such amount under this sub-paragraph shall not constitute disposable income as defined in section 1325(b)(2)', or
(ii) to a health insurance plan regulated by State law whether or not subject to such title; or
(B) received by an employer from 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;
(II) a deferred compensation plаn under section 457 of the Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;
except that such amount under this sub-paragraph shall not constitute disposable income, as defined in section 1325(b)(2); or
(i) to a health insurance plan regulated by State law whether or not subject to such title[.]
11 U.S.C. § 541(b)(7) (emphasis added). The “except that” portions of the statute, untethered to the language that precedes them, together have become known as the “hanging paragraph” of Section 541(b)(7).
The means test form (Official Form 122C-2) contains a line for “Involuntary deductiоns,” defined as “[t]he total monthly payroll deductions that your job requires, such as retirement contributions, union dues and uniform costs.” Chapter
Further, Line 41 of the Form states, in calculating the debtor’s “monthly disposable income” for purposes of Section 1325(b)(2), the debtor is to deduct the following amounts from the debtor’s “current monthly income” to arrive at the debtor’s “monthly disposable income”:
The monthly total of all amounts that your employer withheld from wages as contributions for qualified retirement plans, as specified in 11 U.S.C. § 541(b)(7) plus all required repayments of loans from retirement plans, as specified in 11 U.S.C. § 362(b)(19).
Id. at Line 41.
The issue of voluntary retirement contributions has been the subject of some debate in the case law in recent years. There are essentially three divergent lines of cases. The first line of cases holds that the debtor is not entitled to any deduction for voluntary retirement contributions, whether or not he or she was making voluntary retirement contributions pre-pe-tition. In re Seafort,
A. The Prigge View.
The first line of cases, represented by Seafort, McCullers and Prigge, holds that debtors may not make post-petition voluntary contributions to their retirement plans. This line of cases is in the minority. In the Prigge case, the debtor, who was above-median, was a participant in his employer’s voluntary retirement plan and was making contributions of $1,181.08 per month (reduced to $900.00 per month after he filed for bankruptcy). In re Prigge,
Judge Kirscher’s views in Prigge later came before the 9th Circuit Bankruptcy Appellate Panel in In re Parks,
Simply put, without a clearer direction comparable to the carve out from disposable income for the repayment of retirement loans in § 1322(f), it seems unlikely that Congress intended § 541(b)(7)(A) to bestow a benefit on above-median chapter 13 debtors while their creditors absorbed an even greater loss.
Id. at 709; see also In re McCullers,
The Seafort case is the only Court of Appeals decision to address the issue. Seafort actually involved two cases, those of Ms. Seafort and the Shulers. The facts in Seafort mirror more accurately the facts in this case because, in Seafort, the debtors were repaying pension plan loans and as a result were not making voluntary pre-petition contributions to their pension plans. In re Seafort,
B. The Sixth Circuit Bankruptcy Appellate Panel’s Decision in Seafort.
The Sixth Circuit Bankruptcy Appellate Panel’s decision in Seafort held that debtors may continue to make voluntary contributions to their retirement plans if the debtor was making contributions in comparable amounts pre-petition.
After consideration of the competing policy concerns — BAPCPA’s desire “to ensure debtors repay creditors the maximum they can afford,” versus Congress’s encouragement of retirement savings for all Americans — the B.A.P. reached the following conclusion:
In regard to retirement savings, Congress clearly intended to strike a balance between protecting debtors’ ability to save for their retirement, and requiring that dеbtors 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 thеir 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. Alowing 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.
One judge dissented from the B.A.P’s decision, describing the majority’s decision as “harsh and uneven.”
A number of courts have adopted the Sixth Circuit B.A.P.’s test for voluntary contributions. In re Read,
C. The Johnson View.
In Johnson, the court was faced with a good faith objection from the Trustee.
In Vanlandingham, the Debtor deducted voluntary monthly 401-K contributions in the amount of $151.67 on her means test form, contributions that she was not making pre-petition and only started after she filed for bankruptcy.
In short, Johnson’s interpretation of § 541(b)(7)’s hanging paragraph is most consistent with promoting the legislative policy of protecting and encouraging retirement savings. There is no reason to protect postpetition 401(k) loan repayments, but not postpetition 401(k) contributions in chapter 13.
Id. at 636.
The Vanlandingham court held that the Johnson view is also “consistent with the
The Vanlandinghgm court also mentioned the requirement of good faith, in stating: “whеn an ‘abusive case’ presents itself, the trustee and unsecured creditors are well-armed with the ability to object to confirmation for lack of good faith under § 1325(a)(3).” In re Vanlandingham,
More recently, the Bankruptcy Court for the District of Massachusetts issued its opinion on post-petition retirement contributions in In re Drapeau,
Section 1306 incorporates all of § 541 into the definition of estate property in the Chapter 13 case, including those exceptions detailed in subsection (b). And because § 541(b)(7) expressly excludes voluntary retirement contributions from the bankruptcy estаte, there is no need for § 1306 to contain a duplicative provision excepting such contributions. The exception becomes applicable with the wholesale incorporation of § 541.
D. This Court’s Ruling.
(i) The Trustee’s Disposable Income Objection.
The Trustee in this case urges the Court to adopt the middle ground of thе Sixth Circuit B.A.P.’s opinion in Seafort, limiting contributions to those consistently made by the debtor pre-petition. The Court, however, adopts the Johnson view, for the simple reason that Section 541(b)(7) does not limit the debtor’s ability to make contributions post-petition, nor is there any distinction between pre-petition contributions and post-petition contributions in the statute. There is nothing in the text of Section 541(b)(7) from which the Court can conclude that Congress intended any such distinctions. Indeed, the use of the term “any amount,” without limitation, followed by the term “contributions” compels the conclusion that Congress meant no such distinction. See 11 U.S.C. § 541(b)(7)(A)-(B).
In the Court’s view, the absolutist position represented by Prigge and the Sixth Circuit’s opinion in Seafort places an unwarranted emphasis on the placement of
Further, by the time that Section 541(b)(7) was enacted in 2005, the Supreme Court had already decided that qualified retirement funds were not property of the estate undеr Bankruptcy Code Section 541(c)(2). Patterson v. Shumate,
The Court similarly rejects the middle ground represented by the Sixth Circuit B.A.P.’s opinion in Seafort. First, the B.A.P. relied heavily on the placement of the exclusion in Section 541(b)(7), like Prigge and the Sixth Circuit itself. See In re Seafort,
The Sixth Circuit B.A.P. also placed reliance on the fact that under Section 541 property of the estate is determined at the outset of the case. In re Seafort,
The Sixth Circuit B.A.P.’s requirement that post-petition contributions be comparable to the debtor’s historic, pre-petition contributions appears to be grounded more in policy concerns than in the text of Section 541(b)(7). In the end, the Johnson line of cases hews the closest to the statutory text and Congress’s intended purpose in enаcting Section 541(b)(7) in 2005. The Court, therefore, overrules the Trustee’s disposable income objection.
(ii) The Debtor’s Good Faith.
Finally, good faith is an independent requirement for confirmation of a Chapter 13 plan. 11 U.S.C. § 1325(a)(3). The Court agrees with the Johnson and Drapeau opinions that the debtor’s good faith must be considered. In re Johnson,
The Court finds that the Debtor is proceeding in good faith, and overrules the Chapter 13 Trustee’s good faith objection.
Conclusion
For the foregoing reasons:
A. The Trustee’s Objections to the Debtor’s claim of exemptions under Va. Code §§ 34-4 and 34-29 are sustained. The Trustee will submit an Order within 10 days sustaining the Objection.
B. The Trustee’s Objections to the Debtor’s Plan on disposable income and good faith grounds are overruled.
C. The Court will set a status hearing in this matter for August 11, 2016, at 1:30 p.m.
Notes
. Virginia is an opt-out state. Va.Code Ann. § 34-3.1 (West 2016). Debtors, therefore, are only allowed the exemptions afforded by the Virginia Code and may not claim the federal exemptions set out in the Bankruptcy Code. 11U.S.C. § 522(b)(2), (3).
. As noted above, the Debtor only claimed an exemption under Va.Code § 34-4 for the Debtor’s wages. The Court allowed Debtor’s counsel to argue in the alternative that the wages were exempt under Va.Code § 34-29 because the Debtor can amend his exemptions at any time. Fed. R. Bankr.P. 1009(a).
. The portion of the Fourth Circuit’s holding in Mort Ranta that denial of confirmation of a Chapter 13 plan is a final, appealable order has been effectively overruled in Bullard v. Blue Hills Bank, - U.S. -,
. For below-median debtors, the inquiry is whether the deduction for voluntary retirement plan contributions is "reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor.” 11 U.S.C. § 1325(b)(2)(A). Thus, pre-BAPCPA case law would be relevant to the inquiry. In re Bruce,
. The Hamilton v. Lanning analogy may be an imperfect one in this context. Hamilton v. Lanning involved a departure from the mechanical application of the six-month look-back period of the means test, which requires the debtor to state his or her income for the six months preceding the petition date.
. The Court also finds some guidance to Congressional intent in its use of the term "contributions” in Section 541(b)(7)(A) and (B). 11 U.S.C. § 541(b)(7)(A)-(B). Once pre-petition contributions are made, they become part of a retirement fund. In the 2005 BAPCPA amendments, Congress specifically used the term “rеtirement funds” in the amendments to Section 522, which added exemptions for debtors under both the federal exemption scheme and the State opt-out scheme. 11 U.S.C. § 522(b)(3)(C), (d)(12). If Congress meant to exclude only pre-petition retirement funds from property of the estate, it might have used the term "retirement funds” in Section 541(b)(7), instead of "contributions.” Moreover, if Section 541(b)(7) was intended only to protect pre-petition retirement funds (by excluding them from property of the estate), then Section 541(b)(7) would have been redundant to Sections 522(b)(3)(C) and (d)(12), which provided exemptions for the same funds.
. Given that the Court has sustained the Trustee’s Objections to the Debtor’s claim of exemptions, the Court does not know whether the Debtor’s Plan meets the liquidation test and the disposable income test of 11 U.S.C. §§ 1325(a)(4) and 1325(b).