In the recent case of In re Miner, 2017 wL 1011419 (Bankr. W.D. La. 3/14/17), the court denied confirmation of the debtor’s Chapter 13 plan because the court believed the debtor was contributing too much to his retirement plan at the expense of his unsecured creditors. Furthermore, the court found that the plan could not be confirmed since it did not provide for a step up in payments once his 401K loan was paid off. In this case the debtor had testified that he contributed approximately $700 per month towards his 401K plan for the last 5 years. However, the court did its own calculation and found that if that were true, he would have more funds in his 401K plan than what the debtor actually had. The court decided to give guidance to debtors and indicated that a 3% contribution would be presumed reasonable, but any contribution above 3% would be evaluated on a case by case basis.
Basically, the courts frown on debtors who start contributing more towards their retirement accounts than they did prior to filing. In addition, all Chapter 13 trustees will expect debtors to increase the funding of their plans if during the life of the plan the debtors’ 401K loan is paid off.
If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. Morris Margulies has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call us for a free consultation today. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.