401k CONTRIBUTIONS in Chapter 13??

[jwbbx]

I am over 50 and am contemplating (seriously) Chapter 13. I know that the new case law seems to make loan paybacks to a 401k loan an allowable expense, but I wonder if anyone has successfully argued that 401k contributions are allowable.

The thinking seems to be that you are 'paying yourself', and I guess to a certain extent you are. My employer matches the first 5% though, and I'd really really like to not leave that money on the table.

One attorney I've consulted seems to think 5% would get by the trustee, the other says absolutely not.

Even if they don't allow the expense, can I scrimp other places and make the contribution or would they come back and say they wanted it later after seeing year end/tax forms?

Any EXPERIENCE with this would be appreciated, I'm in the 6th Circuit and it appears this is a hard issue here, but I'm looking for notes from other areas.

[kmb]

We were told that our 401K contributions are allowable in order to get our employers match. My employer matches 6%, so that's what I'm contributing. If you try and go higher than the match, you'll probably run into an issue, but it's my understanding that there has even been case law to allow for minimum contributions.

[Flamingo]

Ask the attorney you hire to handle your Chapter 13. A LOT depends on your situation and how this is all handled in your area. We were allowed, two years into our Plan, to start contribution 1% of my salary back into my 401(k) plan. Prior to filing, I had stopped contributions because of our extreme loss of income at that time and we needed whatever funds were available. Our attorney told me that if the 1% contribution affected our ability to make Plan payments or mortgage payments being made outside the Plan, that contributions would have to stop until after our Plan was complete.

[jwbbx]

That's good to hear KMB! What District are you located in?

[kmb]

I'm in the Northern District of Chicago, not sure what that equates to otherwise though.

[qwertysue]

We had no problem continuing contributions to ours (husband is over 50). However, we have a history of regular contributions.

A few cases ahead of ours, there was a lady who just started to contribute when she first sought an attorney for filing. It was a high amount that she suddenly started contributing. The trustee saw right through that one and grilled her about the *timing* of her beginning contributions. Not sure what happened on that one--the trustee objected and that case was heard by the BK judge.

[chloe0724]

I am contributing 5% (it's the employer match) and my attorney says that's ok. If you stop contributing to the 401k, you'll not really have that much more in income because a lot of it will be eaten up in taxes.

[DebtSlave]

I am in Philadelphia I was told not to contribute until the plan was completed and I was discharged.
Perhaps it depends on the trustee.

[jwbbx]

The answers seem to be all over the place on this one. Anyone familiar with any positive case law on it?

[fabala]

I don't remember where I read it (some attorney blog), but a BK judge in Jacksonville, FL recently ruled that contributions to 401(k) plans can continue through CH13 as an exemption. I asked my attorney about it, and she said that unfortunately the judge in my district had not made such a ruling, and that I could not claim funds to contribute to my 401(k).

This is probably the thing I hate most about bankruptcy - that every judge and every trustee has different rules. There really needs to be some consistency. I know...I'm preachin' to the choir.

[lrprn]

Current bk case law allows both retirement contributions up to a set cap by the local court AND repayment of retirement loans, at least in the 10th District.

I know this because repayment of retirement loans during Ch 13 was an objection made by our trustee after we filed. Our lawyer warned us going in it could be an issue, so we were prepared for the worst. After 15 months, briefs filed by our trustee and our lawyer, and a hearing with our trustee, our lawyer, and our local bankruptcy judge, the judge ruled in our favor and allowed repayment of six retirement loans during our Ch 13.
Now this case law is being used by bk lawyers all over the country to justify repayment of retirement loans during Ch 13. Makes me happy to know that so many other people can now benefit from our situation too.

[CATCHMEIFYOUCAN]

Im in Northern Virginia. Due to having 2 full time jobs I was contributing 6% from both jobs into 401k offered by both companies on top of paying loan withdrawals through automatic payroll deductions. So I was socking away about $600 disposable income (loans included w/in the $600). No fuss with by the trustee.

I don't understand why the BK law cannot be consistent throughout, but every case is different.

Best of Luck, Catchmeifyoucan

[chloe0724]

Really though, your 401k contributions are not disposable income. You contribute pre-tax, so it reduces your taxable income. If you were contributing $50 a month to your 401k and then decided to stop because you wanted that $50 to spend, you would only get about $25 of it because you would be taxed on the rest. So unless you're making huge contributions, it's very hard to see how you would get that much additional income.

[jwbbx]

I like that argument chloe0724, but in fact it's only partially Pre-Tax. They still consider it part of income for FICA and Medicare calculations, so I'm thinking it would be difficult to make a legal argument that it's non-existent.

Consistency really would be nice, but alas it's not to be found. I found some recent case law in our district that SEEMS to allow it, but that's just one judge.