Saving during 13

[Andyman]

Can one save money into a savings account or even add money to a 401K during a Chapter 13?

Thanks!

[justbroke]

Can one save money into a savings account or even add money to a 401K during a Chapter 13?

Yes. If you're going into a Chapter 13, start your 401(k) contributions NOW. You don't want to be arguing why you started them right as you were filing. The more consistency shown with respect to your 401(k) contributions prior to your Chapter 13, the better. In most Districts, 401(k) contributions are not frowned upon. In some Districts, you'll get some noise about it.

As far as savings, you can save whatever is left after your expenses, and amount paid to the Trustee for your Plan. You can't include a "savings" amount in your Plan (except for 401(k) contributions).

I hope that I answered your questions.

[chloe0724]

Please make sure you get a great attorney that is familiar with 13 cases and your Trustee. This will give you the best repayment plan. You need wiggle room to make it through,

[Scott50]

its recommended that the trustees sees that you've been contributing to a 401K on all the paystubs that you submit- six months worth and not one to two months prior to filling... My attorney told me about a client who maxed out her 401K contributions prior to filling thinking that would lower her disposable income... trustee put a stop to that in a heartbeat...

[justbroke]

My attorney told me about a client who maxed out her 401K contributions prior to filling thinking that would lower her disposable income... trustee put a stop to that in a heartbeat...

Well, there's a great case out of Massachusetts where the guy filed for Chapter 13. Prior to confirmation, he got a job paying more money and modified his Plan. He also upped how much he contributed to his 401(k) basically eating up the "additional earnings".

The Trustee didn't like that, of course, and it went to trial. THe Debtor won.

The Trustee tried to get him on the grounds of a Plan filed in Bad Faith. The judge wasn't phased as contributions to a 401(k) are protected.

The major problem is that fighting for what you have in there, will cost you more in legal fees. So, if you don't have much in there... it's not worth spending $1,000s of dollars fighting over the contributions.

(For those pro se filers, the case is In Re; KIMANZI MUSILI MATI, District of Massachusetts 6/9/2008 07-13323-JNF)

The Court finds that the Debtor’s 401(k) contributions do not evidence bad faith under the totality of the circumstances in this case. The Debtor is merely taking advantage of what the law allowsCongress has implemented a policy of protecting and encouraging retirement savings.

Of course, the key here, is what do you want to fight with when it comes to the Trustee. Litigation costs money... even in a Bankruptcy. For the pro se filer, it's a matter of time.

[Flamingo]

What one needs to realize is that money contributed to a 401(k) plan is voluntary and can be viewed as funds that can go towards creditors. Funds in a 401(k) at the time of filing are protected; however, contributions after filing (in a Chapter 13) may not be allowed or just at a low amount. Our attorney told us that anything that may interfere with us making our plan payment or other bills during our plan would need to be stopped; that included contributions to a 401(k). I stopped contributing several months before filing due to lack of funds. Two years into our BK I asked if I could start contributing again to at least get some of the employer match which was 100% up to 3% of my contribution. Our attorney approved 1% with the advice above that if it interefered with our Plan, I had to stop. When it comes to a 401(k) plan and contributions in BK, consult with your attorney before playing guessing games and getting into possible eventual trouble.

[justbroke]

I agree with Flamingo, but I'll add that the changes that were made in the BAPCPA of 2005 were much more friendly towards 401(k), 403(b) and other types of retirement accounts. This was added by Congress for a reason.

Having wrote that, there are other things which can cause you to not be able to put whatever you want into retirement savings. Your Plan may require you to pay unsecured creditors a certain amount, and even your retirement contributions can't interfere with that.

My advice is, don't be afraid to participate in and contribute to your employer's retirement fund. ESPECIALLY if there is "free" money (matching dollars)!!! My Employer matches 100% to 6%. That's alot of free money.

[justbroke]

Adding that what you do, as Flamingo posted, between now and filing, is how it will be perceived. The quicker you get this contribution going combined with the distance of filing, just makes it all go smoother. But don't believe that you can't.