Challenge 401K payments being allowed

[In2deepnow]

I've been doing so much research recently that my eyes are falling. I know that 401K loans are not counted as expense in chapter 7. I am in the northern district of illinois. To have a better idea on shedule j, i tried looking at previous cases on my district thru pacer. I found a schedule j, that has a dmi of +5 dollars, but there was an expense of $276 in 401K LOAN PAYMENT. The person's docket had no history of presumption of abuse or anything. Can I use that and say to the court why did she can and I can't. Sounds very childish but it will be the difference between 60 days in discharge and 5 years. I hope everyone understands my desperation. they have not motioned yet, it's been 6 days since my 341 and nothing new on pacer. I'm just preparing, better be prepared than being caught off guard.

[HHM]

If the "only" expense that would push you into a chapter 13 would be a 401K loan repayment, then you can stay in chapter 7.

But you are correct, you cannot normally claim a 401K loan repayment (or 401K contribution) on the means test and as a budgetary item in chapter 7, but if that is the ONLY item that pushes you over, then you are ok. The courts have addressed this issue and basically said that a 401K expense that would be allowed in a chapter 13, thus creating no DMI for a chapter 13 payment, is not objectionable in a chapter 7.

[In2deepnow]

HHM. for the last 3 weeks I have not slept, scared to death, with that post of yours, coming from the moderator itself on a forum with almost 25,000 members comprising average individuals like me and bright minds from the law. for the first time I think I will win this one....My sincerest thanks

[jdcat]

In2deepnow this is something that has been a huge stressor for me also. I'm in Northern Indiana so we're both in the 7th Circuit. I've had a few attorneys here tell me that our 401k loans would be taken out as a pay deduction on the schedule I. I don't trust that information because that information just runs so contrary to what's going on in most other districts/circuits.

What you have just shared gives me hope! We pay $487 a month in 401k loans and I have been worried sick about this. Did you find just that one case where a 401k loan was allowed and not assumed abusive? Have you talked with any attorneys yet? If so what did they tell you?

[jdcat]

If the "only" expense that pushes you into a chapter 13 would be a 401K loan repayment, then you can stay in chapter 7.

But you are correct, you cannot normally claim a 401K loan repayment (or 401K contribution) on the means tests and as a budgetary item in chapter 7, but if that is the ONLY item that pushes you over, then you are ok. The courts have addressed this issue and basically said that an expenses that would be allowed in a chapter 13, thus creating no DMI for a chapter 13 payment, is not objectionable in a chapter 7.

I had not heard of this before either! And I've done so much researching on this forum and the internet! This should be a sticky!

[jdcat]

Oh sorry In2deepnow, I just read your other thread and see that you're attorney didn't cover all of this with you. Please keep us updated though! And good luck!

[In2deepnow]

fearing a possible objections on other things like including a 200 a month for maintenance for a vehicle over 6 years old I consulted another lawyer. They said they will put it as part of expense the loan payment, not the contribution. It's been 7 days and no activity on pacer, maybe they will motion on friday, the 10th day. anyone here know's if my 341 is tuesday (jan 5th) and friday (jan 15t) is their last day to motion or is it monday the 18th?

[pcn]

If the "only" expense that would push you into a chapter 13 would be a 401K loan repayment, then you can stay in chapter 7.

But you are correct, you cannot normally claim a 401K loan repayment (or 401K contribution) on the means test and as a budgetary item in chapter 7, but if that is the ONLY item that pushes you over, then you are ok. The courts have addressed this issue and basically said that a 401K expense that would be allowed in a chapter 13, thus creating no DMI for a chapter 13 payment, is not objectionable in a chapter 7.

So are you saying, for example, that if I run the means test and have $75 DMI when including the 401k loan payment, but have $275 DMI if it isn't included, that because I would pass when the payment is included there is a chance it could be considered? Thanks from the slow people.

[HHM]

So are you saying, for example, that if I run the means test and have $75 DMI when including the 401k loan payment, but have $275 DMI if it isn't included, that because I would pass when the payment is included there is a chance it could be considered? Thanks from the slow people.

I think so. Let me make sure we are clear.

First, this only matters if your fail part 1 of the means test and must go on to part II. If your DMI is -$75 when you include all expenses, including your 401K loan payment, then you should be fine (assuming no other objectionable expenses). If you remove your 401K loan repayment from the expense column, and now show +$200 DMI...you will still be able to stay in a chapter 7. Reason being, although you cannot technically claim the 401K loan repayment as an expense in chapter 7, you CAN claim it in chapter 13. Thus, if you filed a chapter 13, you would have no DMI to fund the plan.

[pcn]

II think we're almost saying the same thing, but your example has a negative DMI with the 401K payment.

Our DMI is +75 if the 401K is included.
401K Payment is $200.
So if 401K payment were not included in the calculation, our DMI would calculate to be $275. So, if we were moved to a 13, it looks like we could fund $75 per month.

What does that look like they would try to push us into a 13?

[emmaj]

HMM and In2Deep interesting timing on your post for 401K loan payments. We are in a very similar situation. We filed 8/2009 the 401K payments and high car maintenance 8 and 9 year old vehicles put us in a negative DMI. We also knew at the time that our health care insurance was going to rise significantly 1/2010 just not sure how much at the time. We are however $1000 over medium. On day 10 the UST filed the dreaded Presumption of Abuse based on the 707 (can't remember) and Totality of Circumstances stating that if we stop making the 401K payments we can then fund a Chap 13. Our 401K loan payments are $800 / month. We have decided to fight the motion because as expected our health care did rise. The UST also denied the maintenance and repair expenses for our cars (we have documentation). I am now concerned with what the UST is doing based on what HMM states that if we are in a chap 13 they cannot make us surrender the 401K loan payments (which would also cause us to incur significant fed taxes and penalties). Am I correct?

[LadyInTheRed]

Hi, emmaj,

In Chap 13, the payment of a 401k loan is deducted when calculating DMI. The plan cannot materially alter the terms of that loan (Bankruptcy Code Section 1322(f) http://www.doney.net/bkcode/11usc1322.htm).

How long before the loan is paid off? If it is paid off before a chap 13 discharge, that money could then go to pay creditors which may result in sufficient funding of a Chap 13 plan.

[albacore44]

Hi, emmaj,

In Chap 13, the payment of a 401k loan is deducted when calculating DMI. The plan cannot materially alter the terms of that loan (Bankruptcy Code Section 1322(f) http://www.doney.net/bkcode/11usc1322.htm).

How long before the loan is paid off? If it is paid off before a chap 13 discharge, that money could then go to pay creditors which may result in sufficient funding of a Chap 13 plan.

And that would be known as a step plan. you could pay "0' % into the plan untill the loan is repaid, then the 0% would be increased by the amount of what your loan payment was for the duration of the 5 years. not sure how often the UST pulls the trigger on this, but he can do it.

[In2deepnow]

It's a tough call. how long to go are your 401K payments, i have 3 1/2 years and they are only 298 a month and I included the car maintenance. The thing is, even with those two are thrown out, i will be at +77 DMI so an objection to the two, might not be enough to put me ing 13 territory. It is very stressful, and on my research not all district are the same. I know a good attorney can reason with the US trustee, a luxury I never had, though I paid just the same. Hang in there, good luck to all of us hoping for a fresh start.