Finished Meeting Today - Creditor Messed Everything Up

[Delesh]

Ch13 341. Went through all of the standard questions with no problems. Then a creditor comes and states that my voluntary 401k contributions are not allowed as "mandatory income", which is the case (recent 9th circuit decision), but there were other debtors who had voluntary retirement contributions and were not hassled, they were even asked about it by the trustee. Now I have to file an amended payment plan and stop making retirement contributions for 5 years. Not only will I have to pay more taxes, I will also lose my employer match and all of the interest that would have been made on the contributions

The 401k ruling by the 9th circuit truly baffles me. Why would the government not want people to contribute to their retirement and put themselves in a better position later in life? Also, the employer match is a benefit that pretty much equates to part of my income. If I don't contribute it is like I am losing part of my salary from them. I am very unhappy.

[sophieanne]

Hi..I'm also in the 9th circuit. We had our 341 hearing back in August and were asked about 401K contributions. If you are in a plan that will pay less than 100% to creditors the contributions have to stop. If you are in a plan that is going to pay back 100% of all debt, you can continue making contributions. The creditors feel if they're not getting paid everything they are owed, you should not be putting money away that should be going to them. Sorry about your situation.

[Delesh]

Thanks sophieanne, Yes, I can understand the creditors wanting their money, but I thought the whole point of bankruptcy was to help people get back on their feet. Prohibiting people from saving for retirement seems like the wrong direction to me. I am not suddenly trying to game the system by putting a large percent of my income toward retirement. Just the standard contribution I have made since I've been working (6%). Not only that, if I add up all of the costs associated with not contributing to my 401k, I will be losing 10s of thousands of dollars over the 5 years of BK and compounded over the years to retirement age, probably 100s of thousands. Just seems very unfair and short-sighted on the government's side. And like I said above, with the employer match, it is almost like they are taking part of my salary. Anyway, I know I am filing for BK and that means that I shouldn't get the same benefits as everyone else. Just venting really.

[keepsmiling]

Sympathizing, that does suck

[despritfreya]

Yes it sucks but, from the creditor's point of view why should it fund your retirement? The sacrifice a debtor has to make by not contributing for the 5 years seems, again, from the point of view of a creditor, to be a small price to pay to get out from paying the creditor the full amount of what is owed. In five years the debtor can resume the contribution. In that same 5th year, the creditor's ability to collect anything of what is still owed ends.

But, yes, it sucks.

Des.

[frogger]

Yes it sucks but, from the creditor's point of view why should it fund your retirement? The sacrifice a debtor has to make by not contributing for the 5 years seems, again, from the point of view of a creditor, to be a small price to pay to get out from paying the creditor the full amount of what is owed. In five years the debtor can resume the contribution. In that same 5th year, the creditor's ability to collect anything of what is still owed ends.

But, yes, it sucks.

Des.

Sure it sucks, but as Des states, why should a creditor (that is not getting paid) fund your retirement.

It may suck, but it's fair.

[Delesh]

Thanks. Yes, I totally agree that the BK discharge brings with it some crappy stuff for us debtors. And from a creditor point of view it is fair. I was just thinking that it would be a good idea to encourage people to do financially responsible things. It also seemed a bit unfair that other people at the 341 were getting away with continuing their contributions and I was pretty much singled out.

[LadyInTheRed]

Thanks. Yes, I totally agree that the BK discharge brings with it some crappy stuff for us debtors. And from a creditor point of view it is fair. I was just thinking that it would be a good idea to encourage people to do financially responsible things. It also seemed a bit unfair that other people at the 341 were getting away with continuing their contributions and I was pretty much singled out.

Don't be so sure. The trustee very well may file objections to their plans. It just didn't appear to be such a big issue for them because their creditors didn't show up. A trustee doesn't always state at the 341 that they intend to object.

[despritfreya]

Don't be so sure. The trustee very well may file objections to their plans. It just didn't appear to be such a big issue for them because their creditors didn't show up. A trustee doesn't always state at the 341 that they intend to object.

This is so true. The "change" in 9th Circuit practice is too new to know what will or will not happen.

In cases where this may be an issue for my clients I advise them that we can begin with the deduction showing on Schedule I. The worse thing that can happen is that the deduction is not allowed and payments must go up. Most, after looking at the issue, are fine with the idea of trying to keep the 401k deduction and, if such does not work, so be it. This does not seem to be an issue in a case that was confirmed prior to the change in the law however, I have to wonder if it will become an issue if a Modified Plan is filed. So, for cases that are already under the radar I advise my clients not to rock the boat if at all possible.

Des.

[LadyInTheRed]

This does not seem to be an issue in a case that was confirmed prior to the change in the law however, I have to wonder if it will become an issue if a Modified Plan is filed. So, for cases that are already under the radar I advise my clients not to rock the boat if at all possible.

Des.

I sure hope trustee's don't start going back to confirmed plans looking for 401k contributions! Hopefully, they are too busy to do that! This 9th Circuit Chap 13 debtor continues to make 401k contributions and plans to stay on an even keel for the next 25 months.

[Delesh]

Read about the case: In re Drapeau, Chapter 13 Case No. 11-44747 (HJB) in Massachusetts where the courts ruled that post-petition 401k contributions are allowed as long as they are made in "good faith." I wish I lived there

[LadyInTheRed]

Read about the case: In re Drapeau, Chapter 13 Case No. 11-44747 (HJB) in Massachusetts where the courts ruled that post-petition 401k contributions are allowed as long as they are made in "good faith." I wish I lived there

You would have to live in the Central Division of the Massachusettes District where that ruling was from. It is not binding on any other court in Massachussettes or any other state. It could be cited as a pursuasive argument in another court, but the trustee or creditor would present contrary pursuasive arguments, including the 9th Circuit opinion. The 9th Circuit opinion is binding on all courts within the 9th circuit which includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam and the Marianas Islands. It will continue to be binding in the 9th circuit unless this issue makes it to the US Supreme Court and the 9th Circuit ruling is overturned, or Congress passes and the President signs legislation amending the Bankruptcy Code to make it clear that post-petition 401k contributions are allowed.

[Pjmax]

I'm just curious, but is there any way to factor in the loss of employer-match income, when someone must discontinue 401k contributions?

[despritfreya]

You would have to live in the Central Division of the Massachusettes District where that ruling was from. It is not binding on any other court in Massachussettes or any other state. It could be cited as a pursuasive argument in another court. . .,

Actually, unless this Memorandum Decision is ordered published by the issuing judge it cannot be cited for anything. Even if published it is not binding on any other judge in the district - it can be used as persuasive authority but not as precedent. . . and, at some point, even the issuing judge can change his mind for some future case.

Des.