In the recent case of In re Read, WL 4104736 (Bankr. E.D. Wis. 8/19/14), the court held that a debtor could not start contributing towards a 401K plan after she filed for Chapter 13. In this case the debtor filed her case in January, but started contributing towards her employer’s 401K plan in February. The Chapter 13 trustee filed an objection to her plan on the grounds that she had not contributed all her disposable income to the plan. The trustee maintained that the money the debtor was now contributing towards her 401K plan should be dedicated to her plan payments.
The court ruled that under Section 541(b)(7)(A) of the Bankruptcy Code, a debtor may contribute towards a retirement plan that existed as of the commencement of the bankruptcy case. Because the debtor did not start making contributions until after the date the case was filed, the court ruled that during the Chapter 13 case, those funds would need to be applied to fund her plan and not to fund a 401K plan.
The lesson of this case is that if a debtor wants to contribute towards a retirement plan, he or she must have started to contribute towards the plan prior to filing the case. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the Chapter 13 bankruptcy process. Please call us for a consultation today. To learn more about our firm visit our web site at www.law-margulies.com.