Postpetition 401(k) Contributions are Allowable Deductions in Calculating Disposable Income for Chapter 13 Plan Purposes

Postpetition 401(k) Contributions are Allowable Deductions in Calculating Disposable Income for Chapter 13 Plan Purposes

The Debtors’ Chapter 13 plan (“Plan”) is before the Court for confirmation. The Chapter 13 Trustee (“Trustee”) has objected to confirmation, arguing that the Debtors should not be allowed to deduct postpetition 401(k) contributions in calculating their disposable income because no such contributions were made during the six months before this case was filed. The Trustee also asserts that the reduction in the Debtors’ disposable income caused by the postpetition 401(k) contribution does not qualify as a permissible change in circumstances for purposes of determining projected disposable income.

The Detbors  filed their Chapter 13 petition on May 10, 2017. At the same time, they filed Official Form 122C-1 – Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period (“CMI Form”). The calculations on the CMI Form show that the Debtors have above-median income. Accordingly, the Debtors also filed Official Form 122C-2 – Chapter 13 Calculation of Your Disposable Income. In calculating their disposable income, the Debtors deducted $200 for the husband’s monthly contribution to a qualified retirement plan through his employer. The Debtors’ calculations on Official Form 122C-2 result in $205.15 in monthly disposable income being available to pay unsecured creditors through their Plan. On their Schedule A/B: Property, the Debtors disclosed a 401(k) retirement fund in the amount of $56,021 belonging to the wife. On their Schedule I: Your Income, the Debtors listed a monthly 401(k) contribution of $199.33.

The Debtors’ Plan proposes to make sixty monthly payments of $1375 to the Trustee. From the sums received, the Plan directs the Trustee to pay his own fees and commissions, the Debtors’ attorney fees, and two secured auto loans. Any amounts remaining after the payment of those specified obligations are to be distributed to the unsecured creditors on a pro rata basis.

The Trustee objected to confirmation of the Plan, as well as the Debtors’ CMI Form. According to the Trustee, Mr. Davis’ monthly income was understated on both the CMI Form and Schedule I. The Trustee asserts that the correct monthly income for the husband to be used in the disposable income calculation is $2938.66 rather than the $2880.51 shown on the CMI Form or the $2626.69 listed on Schedule I. In their response to the Trustee’s objections, the Debtors concede this issue, agreeing that Mr. Davis’ monthly income for the purpose of calculating disposable income is $2938.66.

The Trustee also objected to confirmation of the Plan because he says that the husband’s monthly 401(k) contribution is not an allowable deduction in the disposable income calculation and, therefore, the amount proposed to be paid to unsecured creditors under the Plan does not include all of the Debtors’ projected disposable income. Specifically, the Trustee argues that the deduction of postpetition 401(k) contributions should not be allowed because Mr. Davis was not making 401(k) contributions at the time of filing and had not made any such contributions during the six-month period immediately preceding the petition date. In the alternative, the Trustee asserts that the 401(k) contributions do not qualify as a permissible change in circumstances for projected disposable income purposes. The Debtors disagree, claiming that there is statutory authority to support the deduction of contributions to qualified retirement plans when calculating disposable income.

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