DEBTORS MAY DEDUCT 401(k) PAYMENTS STARTED POST-PETITION

DEBTORS MAY DEDUCT 401(k) PAYMENTS STARTED POST-PETITION

| Oct 2, 2017 | Bankruptcy |

The above-median income Chapter 13 debtors began taking 401(k) deductions post- Petition and took deductions on the Means Test for those contributions to the husband’s retirement plan. The Chapter 13 Trustee objected and the Court noted that much of the confusion in this case stemmed from how the debtors should calculate their projected disposable income. Section 541(b)(7) of the Code resulted in different interpretations by the Debtor and the Trustee.

A 5th Circuit Bankruptcy Court overruled the Chapter 13 Trustee’s objection to Confirmation based on their deduction of voluntary 401(k) payments that began post-petition. It found that this comports with the notion of the debtors getting a fresh start and stated that if any time the debtors ceased the contribution, the money would become disposable income. This remains a hot topic in the 4th Circuit and feel free to contact our office if you have this issue or know anyone who may be in this situation in their own case.

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.