Judge Limits Retirement Funding in Chapter 13 Plan

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

A couple couldn’t confirm their Chapter 13 payment plan because it provided for an excessive amount of funds to go toward retirement assets, a Louisiana bankruptcy judge ruled March 14 ( In re Miner , 2017 BL 79633, Bankr. W.D. La., 16-10441, 3/14/17 ).

“This matter concerns legal issues relevant to the local bankruptcy bar and the Chapter 13 trustee,” Judge Jeffrey P. Norman of the U.S. Bankruptcy Court for the Western District of Louisiana said in his opinion rejecting the plan filed by married debtors Donald and Sandra Miner.

The judge examined the question of whether and to what extent could a Chapter 13 plan provide for payments to debtor retirement accounts.

He concluded that for the Shreveport Division of the court, 3 percent of income would be appropriate. The court left open the possibility of a larger percentage on a case-by-case basis, if facts justified it.

The Miners filed a Chapter 13 case on March 17, 2016. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

After amending their proposed plan a few times, the Miners proposed one that included repayments on a loan from Donald’s 401(k) as well as contributions to that account. Together, the court said, the payments amounted to about 18 percent of the debtors’ income.

That number was excessive, the court said.

Even though there were no objections by creditors or the Chapter 13 trustee, the court found other problems with confirming the plan. For instance, the debtor’s testimony was insufficient to show the plan was made in good faith, it said.

Noting that it would be “nearly impossible to find anyone who would disagree that voluntarily saving for retirement is a prudent and wise financial decision,” the court found that it may allow a debtor “a limited reasonable voluntary retirement contribution.”

The court then utilized an approach “which accounts for a debtor’s need to save for retirement, but also respects the policy that debtors who can afford to repay creditors do so.” The court concluded that “a 3 percent contribution is reasonable.”

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try Bankruptcy on Bloomberg Law