401k questions

[scooter64dog]

I'm totally new, so I apologize if this is a stupid question.

Is the income they use for the means test your actual take home, after taxes, insurance, and 401k contributions? I was told that I should increase my 401k and roth contributions as much as I could to lower my disposable income. Can you be forced to stop making 401k deductions?

[Flamingo]

Increasing your 401(k) contributions or other retirement contributions is a voluntary thing and those funds would be available to give to creditors especially if you have not been having those amounts taken out of your pay in the past or deposited into an IRA.

We had to list our gross pay and we had to list all deductions taken from that pay on separate schedules (taxes, health insurance, any other deductions). You will be asked to provide past pay stubs which will show these deductions and also to provide information on your retirement accounts.

[scooter64dog]

I have probably about 2-4 months before filing, so if I started making the higher deductions now and show that I have a history of doing so, would I be able to keep making those contributions? Or would I be ordered to stop the contributions altogether?

[justbroke]

Increasing your 401(k) contribution may or may not be viewed as bad faith. However, there was a case in Massachusetts in which a person did this, pre-confirmation, and in a Chapter 13. He had changed jobs before confirmation and was making more money. He took the difference and put it into his 401(k).

The Trustee objected, and a bunch of hearings were held. The Judge stated that Congress' intent was for people to save, and allowed the man to keep the 401(k) contribution!!!

So, you never know. It's in plain text in the modified sections of the Bankruptcy Code (modified by BAPCPA of 2005). Contributions to 401(k), 403(b) and other qualified retirement accounts are NOT disposable income.

However, this won't preclude the Trustee or creditors from filing a "bad faith" objection to your confirmation.

[Flamingo]

I have probably about 2-4 months before filing, so if I started making the higher deductions now and show that I have a history of doing so, would I be able to keep making those contributions? Or would I be ordered to stop the contributions altogether?

It all depends on your district and trustee. You will have to provide at least six months worth of financial transactions and paystubs and it will be obvious you upped the payments prior to filing. That is a risk that you will have to decide whether or not you want to take. Retirement fund contributions are voluntary and if they are on the high side, you may not be allowed to make them over a certain percentage. They can be viewed as available money to pay creditors. With you changing contributions to a higher amount so close to filing could be viewed as fraudulent; i.e.., if you had contributions of say 3% being taken out of your pay consistently for the prevoius several months with no changes, you may not have an issue; if you up them prior to filing during the previous several months, you have an issue.

[scooter64dog]

I see, this makes sense. Thanks everyone!

[justbroke]

With you changing contributions to a higher amount so close to filing could be viewed as fraudulent;

It's "in bad faith" not fraudulent. That's because there is no argument (anymore) that money contributed to a 401(k), no matter when you changed your contribution rate, is not property of the bankruptcy estate, and therefore, can't be disposable income.

However, changing it close to filing, may indicate that your Plan wasn't filed in good faith. This is met with a "bad faith" objection to confirmation of Plan.

As Big Bird (Flamingo) and I are pointing out, you may see if it flies. Generally your lawyer can get a sense of how the Trustee is feeling about it. Worse is, you get a bad faith objection, and you just "fix" the issue and then move on.

Or, like the Massachusetts case, you decide to fight it. Frankly, I think it's your right to put as much into a 401(k) retirement account as you can afford. It right there in the law (11 USC 541(b)(7)).

[lrprn]

Scooter, some local bk courts like ours have set a maximum % Ch 13 filers are allowed to contribute to retirement - ours is 5% each. Our trustee made sure that we were not contributing more than 10% of our income to retirement after our Ch 13 case was filed in 2006.

Check with your lawyer to see if your local court has a capped % retirement contribution like ours does. Some courts have no cap, some do.

[justbroke]

Scooter, some local bk courts like ours have set a maximum % Ch 13 filers are allowed to contribute to retirement - ours is 5% each. Our trustee made sure that we were not contributing more than 10% of our income to retirement after our Ch 13 case was filed in 2006.

Check with your lawyer to see if your local court has a capped % retirement contribution like ours does. Some courts have no cap, some do.

And, personally, I would fight any that tried to cap your 401(k) retirement contribution. The plain reading is that 401(k) contributions are not property of the estate and hence not disposable income.

I really do dislike that Districts are different, but a lot has to do with underlying State bankruptcy and non-bankruptcy law(s). However, I don't think someone should be denied something granted by the law under which the filed.

I guess it's just me. I guess I'm a Debtor's rights kind of guy.

[scooter64dog]

No kidding, I am absolutely for debtor's rights, too! I dislike the feeling of being a criminal and that those who file bk are so terrible that I get from some people.

[njguy1972]

I met with 2 lawyers about my potential Ch 13 case:

1st - wanted to defer student loans and eliminate 401k contributions.

2nd- will include the student loans outside of the plan and is trying to make a case for my 401k contributions of 6% (since that is what the company matches). He said many times the trustee tells the debtor that those contributions are disposable income to be used for the creditors.

This is where I need my attorney to work with me since at my salary we can reduce my ch 13 payment by over $500 a month with the 401k and student loan.

[justbroke]

IHe said many times the trustee tells the debtor that those contributions are disposable income to be used for the creditors.

THis is just it. I don't care what Trustee's think. I care what the plain reading of the modified law is under the BAPCPA of 2005! I had absolutely not even one question on my contributions (my company has 100% match at 6% as well).

Contributions to Employee Retirement Plans are not property of the Estaet according to the law. I find it funny that many (Districts) are still on the old law.