Chapter 13 and 401k

[Christine88]

Hello everyone

I may be filling a chapter 13 this month and I have a 401K question. I just increased my 401K contribution to 10% this month which lowered my monthly income. Can the plan be adjusted after six months to reflect the lower income or should I wait six months and then file?

Christine

[LadyInTheRed]

Welcome to BKforum!

Waiting 6 months is probably irrelevant. You may or may not be able to continue to contribute to your 401k during your plan, at 10% or at whatever rate you were contributing before. It first depends on whether this is settled law in your area. I know 401k contributions are not allowed in the 9th circuit because of an August 2012 Bankruptcy Appellate Panel ruling. But, SC is in the 4th Circuit where the court's don't have to follow 9th circuit rulings. If it is not settled law in your district or circuit, it will largely depend on your trustee and perhaps on the views of the judge if you push the issue that far. I'm in the 9th circuit, but I filed before the 8/2012 ruling. The trustee didn't object to my 401k contributions, so they were allowed.

Have you consulted with any attorneys yet? That's the best way to know what is allowed in your local court.

[sophieanne]

Hi Christine88,
This is somthing that would be decided after you file. If you are in a 13 (depending on your state), you may have to lower or stop your contribution level. If you in a 100% payback plan they let you continue to contribute. If not, you may not be able to contribute to your plan. This is something to talk to your attorney about. The reason for this is the creditors do not feel it's fair for you to build your savings up while they don't get their money back.
You might need to get the opinion of someone in S. Carolina. In WA state that is the way it is. (Basically the same response at Lady...only her response lays it out better.

[sophieanne]

Welcome to BKforum!
.
.
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I know 401k contributions are not allowed in the 9th circuit because of an August 2012 Bankruptcy Appellate Panel ruling.

Hi Lady,

In the 9th circuit, we're still allowed to contribute to a 401K plan as long as we're in a 100% payback plan. When I attended my confirmation hearing this was very clearly explained to everyone during their confirmation hearing. It was why I was allowed to cotinue my contributions.

[Christine88]

Welcome to BKforum!

Waiting 6 months is probably irrelevant. You may or may not be able to continue to contribute to your 401k during your plan, at 10% or at whatever rate you were contributing before. It first depends on whether this is settled law in your area. I know 401k contributions are not allowed in the 9th circuit because of an August 2012 Bankruptcy Appellate Panel ruling. But, SC is in the 4th Circuit where the court's don't have to follow 9th circuit rulings. If it is not settled law in your district or circuit, it will largely depend on your trustee and perhaps on the views of the judge if you push the issue that far. I'm in the 9th circuit, but I filed before the 8/2012 ruling. The trustee didn't object to my 401k contributions, so they were allowed.

Have you consulted with any attorneys yet? That's the best way to know what is allowed in your local court.

Yes I mentioned it to my attorney and he encouraged me to increase the contribution. He stated the trustee wouldn't object though he certainly could as I don't think it's settled law in SC. I wish the SCOTUS would take up this matter so it would settled on a national level.

[LadyInTheRed]

Hi Lady,

In the 9th circuit, we're still allowed to contribute to a 401K plan as long as we're in a 100% payback plan. When I attended my confirmation hearing this was very clearly explained to everyone during their confirmation hearing. It was why I was allowed to cotinue my contributions.

Yes, there is a lot more flexibility in a 100% plan. But, in a plan where the plan payment must be equal to the debtor's Disposable Monthly Income (in some courts that's even true of a 100% plan), then a 401k contribution is not an allowable deduction in calculating the DMI in the 9th Circuit.

[LadyInTheRed]

Yes I mentioned it to my attorney and he encouraged me to increase the contribution. He stated the trustee wouldn't object though he certainly could as I don't think it's settled law in SC. I wish the SCOTUS would take up this matter so it would settled on a national level.

Be careful what you wish for. It would be better if Congress would amend the Bankruptcy Code to expressly allow 401K contributions when calculating DMI.

[katztoo]

I'm in SC and our disposable income was calculated based on net income after 401K contributions. Our trustee is out of Spartanburg court (not allowed to mention names on here).

[Christine88]

I'm in SC and our disposable income was calculated based on net income after 401K contributions. Our trustee is out of Spartanburg court (not allowed to mention names on here).

That's encouraging then because I'm in York county.

[Slingerland]

I'm in SC and our disposable income was calculated based on net income after 401K contributions. Our trustee is out of Spartanburg court (not allowed to mention names on here).

What was the percentage you were contributing to your 401(k)?

[katztoo]

What was the percentage you were contributing to your 401(k)?

Only 4%. They didn't question ita at all though.

[Christine88]

My car note is due 5-30-13 and I am going to keep it. I'm suppose to file chapter 13 on 5-29. Do I make the car payment as scheduled or wait till after I file?

[LadyInTheRed]

My car note is due 5-30-13 and I am going to keep it. I'm suppose to file chapter 13 on 5-29. Do I make the car payment as scheduled or wait till after I file?

Does your plan provide that car payments will be made by the trustee from your plan payments or will you continue to make payments directly to the lender during your plan. If you will make direct payments, you should make the payment by the due date. If not, ask your attorney.