Post-Petition Voluntary Retirement Contributions Are Disposable Income
Post-Petition Voluntary Retirement Contributions Are Disposable Income
Under Chapter 13 According to a District Court Addressing the famous “hanging paragraph” incorporated into 11 U.S.C. § 541(b)(7) by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)—which has divided bankruptcy courts nationwide—the U.S.
District Court for the Northern District of California held that voluntary contributions to a 401(k)-plan made after filing a petition for Chapter 13 bankruptcy cannot be excluded from the calculation of the debtor’s disposable income.
In this case, both the district and bankruptcy courts adopted the reasoning of Parks v. Drummond (In re Parks), 475 B.R. 703 (B.A.P. 9th Cir. 2012), which focused on the hanging paragraph’s location within Section 541 to conclude that only 401(k) contributions that were made prior to the filing of the bankruptcy petition are excluded from the estate.
In the First Circuit, In re Drapeau, 485 B.R. 29, 38 (Bankr. D. Mass.
- reached a contrary result. In that case, the bankruptcy court held
that post-petition voluntary contributions to retirement plans are excluded from disposable income as long as made in good faith. Such “determination is case-specific and will often turn on whether a debtor has made contributions in similar amounts over an extended period of time.”