Reasonable Voluntary Retirement Contributions are Not Disposable Income when the Debtor has made those Contributions on a Consistent Basis Prior to the Filing of the Chapter 13

Reasonable Voluntary Retirement Contributions are Not Disposable Income when the Debtor has made those Contributions on a Consistent Basis Prior to the Filing of the Chapter 13

This matter came before the Court on January 25, 2018 for Confirmation of the Debtor’s
Chapter 13 Plan of Reorganization and the oral Objection to Confirmation of the Chapter 13
Trustee. In particular, the Chapter 13 Trustee objects to the Debtor’s post-petition voluntary
contributions to her 401(k) retirement plan on the grounds that the amount of such contributions  should be considered disposable income and the Debtor should be required to dedicate those  amounts to her Chapter 13 Plan.

Debtor filed her petition for bankruptcy protection pursuant to Chapter 13 of Title 11 of
the United States Code on August 2, 2017 (hereinafter the “Petition Date”). Debtor’s Petition
and Schedules show that she is employed as a team member at Wal-Mart and her gross pay is
$1,873.91 per month. Debtor’s Schedules I and J showed disposable income of $294.63, which includes a deduction in amount of $37.48 per month as a voluntary contribution to her 401(k)
retirement plan with Wal-Mart.

Also on the Petition Date, the Debtor filed her Chapter 13 Plan in which she proposed to
pay $294.00 per month to fund her Plan. The amount to be paid into the Plan is consistent with
the Debtor’s disposable income on Schedules I and J. This Debtor is a below median income
Debtor. At her confirmation hearing, Debtor testified that she had consistently contributed to her  401(k) retirement plan for at least the six months preceding the Petition Date, and that her pre-petition contributions totaled $237.59. She further testified that her contribution to the 401(k)  retirement plan was voluntary and not mandated by her employer, Wal-Mart. Finally, the Debtor  testified (and Debtor’s schedules reflect) that she has no rent or mortgage expense, that her total  living expenses are only $1066/month, and that she does not have any room to further cut her  expenses.

The Chapter 13 Trustee has objected to the Debtor’s Plan on the grounds that the long
standing practice in the Southern District of Alabama has been that Debtor’s cannot continue
voluntary contributions to 401(k) retirement plans post-petition and cannot deduct such
payments from disposable income. The Debtor has responded that current case law allows the
Debtor to deduct voluntary 401(k) contributions post-petition under certain circumstances.
Namely, that the Debtor can demonstrate that the post-petition contributions are consistent with  the pre-petition activity of the Debtor and that the Chapter 13 Plan has been proposed in good  faith.
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