401K Contributions

[sdcouple]

I am currently not making 401 K Contributions, If I begin to contribute, then file, is that amount considered "allowable" when it comes time to figure my DMI ? Any help would be appreciated.

Thanks.

[optimistic1]

[NoTomatoCan]

Optimistic1 is absolutely correct.

Unfortunately not everyone has experienced the same treatment when it comes to 401k contributions. The law seems very clear but many on this forum have either not been allowed to contribute, or have had their contributions limited. Even in my jurisdiction (Eastern Michigan) I was told that the trustees fight it if you just started contributing shortly before filing.

Here is a decent link on the topic:

Also search 401k within the Chapter 13 section of the Forum and you will find a lot of good threads on the topic.

While your mileage may vary, I suspect Optimistic is right... if you are willing to fight it the trustee will probably lose.

[Scott50]

the only thing that will probably raise red flags is how soon you file CH13 after you start the 401K contributions since the the trustee will look at six months worth of pay statements...

[BnkrptcyLwyr]

Optimistic1 is absolutely correct.

Unfortunately not everyone has experienced the same treatment when it comes to 401k contributions. The law seems very clear but many on this forum have either not been allowed to contribute, or have had their contributions limited. Even in my jurisdiction (Eastern Michigan) I was told that the trustees fight it if you just started contributing shortly before filing.

Here is a decent link on the topic: http://www./2008/01/25/can-i-contrib...13-bankruptcy/

Also search 401k within the Chapter 13 section of the Forum and you will find a lot of good threads on the topic.

While your mileage may vary, I suspect Optimistic is right... if you are willing to fight it the trustee will probably lose.

I practice here in the Eastern District of Michigan ... and here's what I can tell you.

If the clients have the money, I tell them to start contributing. There is really nothing that indicates that the deduction for 401k contributions is related to when you started them.

If they can wait, then wait a few months to file and allow the deductions to come out for several months, that way every check shows the deduction coming out.

If they can wait till the beginning of the new year (if you're starting late in the year), then wait till about the end of February to file, that way the year to date numbers on check stubs show a continuous contribution. If they see a December stub with a total taken out of $250 ... they're tipped off that you just started.

One of things that I was able to show is that the client had previously contributed at a high level, but had to stop because of recent financial difficulty, and they started again. The Trustee noted that they just started contributing and raised an objection ... an email to the case analyst with proof of prior contributions at those levels resolved the objection!

What is most amazing to me is that there are many attorneys who don't know that 401k contributions are allowed. That's the scary part.

[NoTomatoCan]

BnkrptcyLwyr - That is reassuring to hear.

My wife and I both contribute $16k per year plus have about $950 per month in 401k loans (so about $44k total per year that we will essentially be paying ourselves).

Two of the lawyers we spoke with basically said "no way". One other was skeptical and said probably ok since we had a track record. The other was much more confident.

Scary indeed. Like I said, the law seems very clear on the matter. Not sure why this seems to still be in dispute.

[BnkrptcyLwyr]

BnkrptcyLwyr - That is reassuring to hear.

My wife and I both contribute $16k per year plus have about $950 per month in 401k loans (so about $44k total per year that we will essentially be paying ourselves).

Two of the lawyers we spoke with basically said "no way". One other was skeptical and said probably ok since we had a track record. The other was much more confident.

Scary indeed. Like I said, the law seems very clear on the matter. Not sure why this seems to still be in dispute.

I have a case that says that 401k contribution can be taken up to the maximum legal limits. The wording of the statute is that "any" contributions are deductible.

The 401k loans payments should be allowed no problem. The issue there is when they will end? If they end during the plan payment period, then when they end, you increase your payment by the amount that you stopped paying on the 401k loan.

For the 401k contributions, start by taking out the amount that you want to contribute, but if push comes to shove, over to lower the amount to some reasonable amount. 16k per year does sound like an awful lot - but then again maybe not depending on how close to retirement you are.

Here's what you may do ... run the numbers to see what % you're paying to unsecured creditors. If that number is really small (5% or less) then you best reduce your 401k contributions (and increase your plan payments) so that you get that percentage up to something "meaningful." Maybe 20%. If you can lower your 401k contributions by $400/month and you end up with a dividend north of 20% - then that will take the sting out of it for the Trustee and the judge, and it will demonstrate your good faith (you were taking out more, and voluntarily reduced your contributions to pay more to your creditors). This will induce the Trustee to look more favorably upon your plan and offer little to no resistance. I've done this strategy before, and it worked fine. Remember, this is give and take, a balance between you and your creditors ... sometimes offering the carrot to the Trustee will make him bite. Better to give something, instead of having the Trustee start fighting you for the whole amount of your contribution!

[klandsb]

My attorney said contributions ok, loans ok , but not both. I tried to argue my case with him but gave up because I only had 6 pmts left on the highest loan & the other one is only $ 100.00 a mth... Down to 3 pmts now...Yahoo. I do contribute 6% of my pay to my 401k because my employer matches it up to 6% . Nothing was said at my 341 Dec. 7th.

[BnkrptcyLwyr]

I've had clients with both all the time.

Never a problem.

11 USC 541(b)(7) takes care of 401k contributions.

11 USC 1322(f) takes care of 401k loans.

[catleg]

There is some case law in NY saying "step plans" aren't required:

http://www.newyorkbankruptcylitigation.com/?p=86

[BnkrptcyLwyr]

Oh that would be all well and good ... up until the point the Trustee brings up the ubiquitous "good faith" argument. And in any event the 6th Circuit BAP has held that the word "projected" and the phrase "to be received" are the forward looking aspects of it all, and requires courts to look to changes in the future. It is hard to argue against that.

We'll all know much, more when the Supreme Court decides the Lanning case.

[lrprn]

We'll all know much, more when the Supreme Court decides the Lanning case.

For those who are interested, here's a link to the Lanning case decision by the 10th Circuit US Court of Appeals - http://www.scotusblog.com/wp/wp-cont...8-998_ca10.pdf