EL ECTRONI C CI TATI ON: 2010 FE D App. 0009P (6th Cir.) File Na me: 10b0009p.06

BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT

In re: DEB ORAH K. SEAF ORT ) ) and ) ) FREDERI CK C. SC HUL ER ) and CARRI E A. SCHUL ER ) ) Debtors. ) Nos. 09-8062

_____________________________________ ) 09-8063 ) ) BEV ERL Y M. BU RDEN, ) CHAPTER 13 TRUSTEE ) ) Ap pe lla nt, ) ) v. ) ) DE B OR AH K. SEA F OR T ) ) and ) ) FREDERI CK C. SC HUL ER and ) CARRI E A. SCHUL ER ) ) Ap pe lle e s. ) )

Appea l from the United States B ankruptc y Court for the E astern D istrict of Kentuc ky Case Nos. 08-22380 a

nd 08-22417 Argued: May

4, 2010
Dec ided and F iled: September 14, 2010
B e fo re : B OSWE L L , M c I VO R, a nd SHE A- STO NU M, B ank ru ptc y Ap pe llate Pane l Judg e s.2 ____________________ CO UN SEL
ARG UED: Daniel Hitchc ock, WYATT, TARRANT & COMBS, L L P, L exington, Kentucky , for Appellant. Mi chae l B. Bake r, THE BA KER FI RM, PL L C, Flore nce, Kentucky , for Appellees. ON B RI E F: Daniel Hitchc ock, WYATT, TA R R AN T & COMB S, L L P, L exington, Kentucky , for Appellant. Micha el B . Ba ker, TH E BA KER FI RM, PL L C, Florenc e, Ke ntucky , for Appe llees.

____________________ OP IN ION

____________________ MA RCI B . M c I VO R, B ank

ru pt cy App e llate Pane l Judg e . In th e se c on so lid ate d a pp e a ls, Bev er l y M

. Burden, Chapter 13 Trustee (“Tr

ustee” ), appe als the bankr uptcy court’s r uling that Debtors may

use income which b ec o m es available once 401( k) loans ar e re paid to commence makingcontributions to debtor s ’ 4 0 1 (k ) plans. For the re asons stated in this opinion, the Panel conclude s that post-petition income which bec omes ava ilable af ter a debtor re pay s a 401(k) loan must be committed to the chapter 13 plan. Ther efor e, the bankruptc y court’s rulings c onfirmingthe Debtors’ chapte r 13 plans ar e re verse d. The case s are rema nded for further

proce eding s consistent with this opi nion.

I. ISS UE ON AP P EAL
The issue ra ised in this appeal is whethe r a chapte r 13 debtor who is repa ying a 401(k) loan, but not making a

ny 401(k) c ontributions at the time the bankruptcy petition is filed, may

use the income which be comes available whe n the loans ar e re paid to start makingcontributions to debtor’s 40 1( k) pla

n r athe r t ha n c omm itt ingthe e xtra

inc ome to r e pa

y c re dit or s.
II. JU RI SDI CT ION AND STANDARD OF RE VI EW
The B an kruptcy

Appellate Pane l has jurisdiction to decide this appea l. The United States District Court for the Ea stern District of K entucky has authorized appe als to the Panel, and ne ither par ty h a s ti me ly

e le c te d to h av e th is a

p p e a l h e ar d

b y th e d is tr ic t c o urt. 2 8 U

. S. C. § § 1 5 8 (b)( 6), (c )( 1) . A fi nal or de r o f t he ba nk ru ptc y c ourt may be a pp e a le d a s o f r ig ht p ur su ant t o 2 8 U .S. C.3

§ 158(a) (1). F or purpose s of appe al, an or der is fina l if it “ends the litigation on the merit s and leave s nothing for the court to do but e x ecute the judgme nt.” Mi dl a n d A sphalt Cor p. v. United States, 489 U.S. 794, 798, 109 S. C t. 1494, 1497 (1989) (c itations and internal quotations omit ted). The orde r of the bankruptc y court confirming the Debtors’ chapte r 13 pl ans over the objections of the Trustee is a final, appe alable or der. Ge n. Ele c . Cre dit Eq uit ie s, In c . v. Br ic e Rd

. D e v s. , L. L.C. ( In reBr ic e Rd

. D e v s. , L. L.C. ), 392 B .R. 274, 278 (B.A .P. 6th C ir. 2008).
Th e ba nk ru ptc y c ourt ’s le g a l c on c lus ion s, inc lud ingits int e rp re ta tion of the a

pp lic a ble statutes, are revie wed de novo. Br ic e Rd . D e v e lop s. , L. L.C. , 392 B.R. at 277. “De novo means that the appe llate cour

t determin es t h e law inde pendently of the trial c ourt’s dete rmination.” Tre ini sh v. Norwest Bank Minn., N.A. ( In rePe ria nd

ri ), 266 B.R. 651, 653 (B .A.P. 6th Cir. 2001) (c itations omitted).
The c ourt’s finding s of fa ct ar e re viewed unde r the c lear ly err oneous standar d. Riverv iew Trenton R.R. Co. v. DSC, Ltd. ( In re DSC, Ltd. ), 486 F .3d 940, 944 (6th Cir. 2007). “A f inding of fac t is clearly

err oneous ‘whe n althoug h there is evidence to support it, the r eviewingcourt on the entire e vidence is left with the definite a nd firm conviction that a mistake has bee n comm i t ted.’ ” Id. (qu o t i n g Anderson v. City of Besse mer City, 470 U.S. 564, 573, 105 S. Ct. 1504, 1511 (1985) ).
III . F AC TS
On Novembe r 20, 2008, De borah S eaf ort filed a pe tition for relief unde r cha pter 13 of the Ba nkruptcy Code. On November 25, 2008, Fr eder ick C. Schule r and Carrie A. Schuler filed a joint pe tit ion fo r r e lie f u

nd e r c ha pte r 1 3 o f t

he B ank ru ptc y Cod e . A t t he tim e the de bto rs fi le d th e ir

re sp e c tiv e pe tit ion s f

or re lie f, De bo ra

h Sea fo rt and F re de ri c k C. Sc hu le r ( he re ina ft e r c oll e c tiv e ly “De btors”) w ere both eligible pa rticipants in their re spective e mploy ers’ ERI SA qualified 401(k) retire ment plans. The De btors wer e not makingcontributions to their plans at the time they filed for bankruptc y

relief ; however , eac h Debtor was repa ying a 401(k) loan. Seaf

ort was pa

ying he r loan at the rate of $254.71 pe r month, and Schuler w as pay ing $815.86 pe r month.
The De btors eac h filed a proposed chapte r 13 plan which provided for a commitment period of five year s. Under the ir respe ctive propose d plans, the loans would be re paid in full befor e4

completion of the plans. The plans proposed to c omplete re pay ment of t he loans and then c ontinue pay roll deductions as 401(k) contributions in the same amount as the loa n pay ments. The plan pa y me nts wo uld no t, the re fo re , inc re a se a ft e r the loa ns we re pa id in fu ll. Th e Tr us te e ob je c te d to confirmation of both plans assertingthat beca use the Debtors wer e not making 401( k) contributions

a s o f t he c omm e nc e me nt o f t

he ir ba nk ru ptc y c a se s th e De bto rs mus t in c re a se the ir pla n p ay me nts by the amount of the loa

n pay ments once the loans wer e paid in full. The bankruptcy court consolidated the cases t o deter mine whether

the Debtor s could exclude their propose d 401 (k ) contributions from proje cted disposable inc ome which would other wise be paid into t h ei r re s p ective c hapter 13 plans. On June 22, 2009, the court issued a me morandum

o p i n ion and orde r conc luding that the e x clusion was per missibl e and that the Debtors’ respe ctive chapte r 13 plans should be confirme d without modification. On J une 30, 2009, the Trustee moved the cour t to alter or amend its orde r. The Trustee ’s motion wa s resolved by entry of an agree d order on October

5, 2009, which re quired the D ebtors to provide c erta in d o cu mentary evidenc e to the Trustee reg ardingtheir 401(k) plans and e stablished cer tain events whic h would require amendment of the plans dur ing the applicable commitment period. The Tr ustee’s timely

appea l followed.
IV . D ISC USS ION Prior to the adoption of the B ankruptc y Abuse P reve ntion and C onsumer Protec tion Act of 2005 (“B APCP A”) , a cha pter 13 de btor could not make c ontributions to a 401(k) plan bec ause suc h funds wer e conside red disposab l e i n co m e whi ch had to be committed to the chapter 13 plan. Ha rsh ba rge r v . P e es (

In re Harshbarge r), 66 F .3d 775, 777-78 (6th Cir. 1995)

. For the same re ason, chapte r 13 debtors w ere also prohibited from r epay ing a 401(k) loan dur ing the life of a chapte r 13 plan, re g ardle ss of any

adver se conse quence s which mig ht re s u l t from nonpay ment. Id. The adoption of B APCP A, however, re s u l t ed in seve ral c hang es to the treatment of ERI SA qualified employ ee be nefit plans (“ Qualified Plans”) . In particula r, B AP C P A am en d ed § 541 to add subsection (b) (7 ) which allows de btors to shelter contr ibutions t o cer tain Qualified Plans fr om pr op e rt y of the e state . A s a

re su lt, a de bto r m ay

no w e xclu de c on tr ibutio ns to Q ua lif ie d Pl ans , including c ontributions to a 401(k) plan, up to the permitted amount of the plan fr om his bankruptcy estate. In re Nowlin, 3 6 6 B. R

. 6 7 0 , 6 7 6 (B an kr. S

. D. T ex
. 2 0 0 7 ) ( ci t i n g In re J ohnson , 346 B.R. 256,5

263 (B ankr. S.D. G a. 20 0 6 )), aff’d , No. 07-2446, 2007 WL4623043 (S.D. Tex. Dec. 28, 2007) , aff’d , 576 F.3d 258 (5th Cir. 2009). In addition, BA PCP A added subsection (f) to 11 U.S.C. § 1322 which p r o h ib it s a c h a

p te r 1 3 p la

n f r o m a lt e r in g th e te r

ms o f a 4 0 1 ( k ) lo an an d e xc lu des “any
amount s” us e d to re pa

y loa ns fr om Q ua lif

ie d Pl ans fr om t

he c a lc ulatio n o f a

de bto r’ s “ dis po sa

ble income.” 11 U.S.C. § 1322(f)

. In sum, BAPCPA chang ed the wa y contributions to Qualified Plans and loan pa

y ments to such plans are treated in chapte r 13 ca ses.
BA PCP A also made chang es to 11 U.S.C. § 1325, the Code sec tion which spells out the

re qu ir e me nts fo r c on fi rm atio n o f c ha pte r 1 3 p lan s ; h o w e v e r , t

h e a me ndme nts did

no t di re c tly

a dd re ss ho w t o tr e at th e inc ome wh ic h be c ome s ava ila ble wh e n a 401 (k ) loa

n is re pa id dur ingthe a

pp lic a ble commitment period. The F ifth an d E i gh t h Circuit Courts of Appeal have cla ssified the re sulting available funds as projected disposable inc ome which must be c ommitt ed to the debtor ’s cha pter 13 p la n
. Mc Car ty

v . La so wsk

i ( In re Lasowski ), 57 5 F .3 d 8 15 , 8 20 (8 th C ir . 2 00 9) ; Nowli n v. Pe ake ( In reNow lin ) , 576 F.3d 258 (5th Cir. 2009). Howeve r, no court has addre ssed the pre cise que stion prese nted by

this appeal: whe ther a

debtor, who w as not contributingto an E R I S A q ualified plan when the c a s e w a s f

il e d , ma y b e g in ma k in g4 0 1 ( k ) c o n tr ib u ti o n s o n c e th e 4 0 1 ( k ) lo anh a s been repa id.
The Tr

ustee make s three a

rguments in support of her position that the bankr uptcy court e rre d in permitting these Deb t o rs , who wer e not makingcontributions to their 401(k) plans at the

co mm e nceme nt of their ca ses, to exclude the income whic h beca me ava ilable once their 401(k) loans

wer e re paid from pr ojected disposable income and then use that income to make c ontributions to a 401(k) plan. First, pursuant to fundame ntal rules of statutory construction, the Trustee argues that chapte r 13 debtors ma

y only exclude contribut ions they are makingto a 401(k) pla n as of the

commence ment of their c ase f rom proper

ty of t he estate and dis posable income . Second, the Tr ustee
a sse rt s th at th e De bto rs’ pr op os e d p lans did no t c omp ly

wi th t he pr oje c te d d isp os a

ble inc ome require ments of § 1325(b)( 1). L astly , the Trustee contends that the Debtor s’ plans we re not propose d in good f aith.6 A. P roperty of the Estate and E xclusion s from P roperty of the Estate
In deter mining the meaning of a statute, the P anel must first examine the pl ain l anguag e of the statute. United St ates v. Ron Pair Enters., Inc. , 489 U.S. 235, 241, 109 S. C t. 1026, 1030 (1989). “I f the statutory

languag e is unambiguous, . . . that l an gu age m u st ordinarily be re g arde d as conclusive.” Rev es v. Ernst &Y oung , 507 U.S. 170, 177, 113 S. Ct. 1163, 1169 (1993) ( citations omitted). “When a statute is ambiguous, we look to its purpose and may consider the statute’s policy implications in determining wha t Congre ss intended.” Koenig Sporting Goods, Inc. v. M orse Rd. Co. ( In re Koenig Sporting Goods, Inc. ), 203 F .3d 986, 989 (6th Cir. 2000).

Se c tio n 5 41 (a )( 1) pr ov ide s: (a) T h e c o m m e n c e m e n t

o f a c as e u n d er section 301, 302, or 303 of this ti tle cre ates a

n estate. Such e state is co m p ri s ed of all the following proper

ty , wher ever

located a nd by whomever

held: (1) Except as pr ovided in subsections (b) and (c) (2) of this section, all leg al or equitable interest of the de btor i np r o p e rty as of t

hec om me nc e me nt o

f th e c as e . 11 U. S.C. § 5 41 (a )( 1) (e mph a sis a dd e d) . T he de fi nit ion of “ pr op e rt

y of the e state ” is e xce pti on a lly broad a nd desig ned to “‘ bring any thing of value that the debtors have into the [bankruptcy ] estate.’” Lyon v. Eiseman (

In re Forbe

s ), 37 2 B. R. 321 , 330 (B .A .P. 6th Cir . 2 00 7) (c itatio n o mitte d) . Wh ile

rea chingbroadly

to bring a wide varie ty of prope rty into the estate, § 541 a lso provides for a number of exclusions. S ubsection (b) lists certain intere sts which may exis t as of the c ommenceme nt of the

case , but are never

theless excluded from pr operty of the e state. B AP CPA amended § 541(b) by addingsubsection (b)( 7) to the list of proper ty which could be excluded from prope rty of the e state. Se c tio n 5 41 (b )( 7) state s:

(b) Prope rty

of the e state does not include -

. . . . (7) a ny amount -7 (A) w ithheld by

an employ er f

rom th e wa ges of e mpl oye e s f

or pa y me nt a s c on tr ibutio ns - (i) to- (I ) a n emp loye e be ne fi t plan that is su bje c t to tit le Iof the Em plo y e e Re tir e me nt I

nc ome Security Act of 1974 or under

an employ ee benef it plan which is a g overnme ntal plan under se ction 414(d) of

the Interna l Revenue Code of 1986;

. . . . e xce pt t hat su c h amou

nt under thi s su bp ara g ra phsh a ll n ot c on sti tut e dis po sa ble in c o me a s d e f

in e d in s e c ti o n1 3 2 5 ( b ) ( 2 ) [. ] 11 U.S.C. § 541(b)(7).
In this case , the bankruptcy court c oncluded that be cause § 541(b)( 7) excludes contributions to a 401(k) pla n fr o m p ro p er ty of the e state and e x cludes the a mount of those contributions from being considere d disposable income, c ontributions which commence after the fi lin g of the c a se mus t also be e x cluded f

rom proper

ty of the e s t ate. The Panel disag ree s. The Panel c oncludes that the langua g e of

§ 5 41 (a ) i s c le ar. Pr op e rt y of the e state un de r § 54 1( a )( 1) and e xclu sio ns fr om p ro pe rt y of t he es tate un d e r

§ 5 4 1 ( b ) mu s t b o th

b e d e te r mi n e d o nth e d ate o f

th e f il in go f th e c a s e
. As provided in the statute, § 541(a) spe cifica lly states that “the c ommenceme nt of a c ase . . . c reates an estate.” Section 541(b) e x cludes c erta in property from the de finition of “p ro p er ty of the e state.” Read togethe r, § 541(a) and (b) establish a fix ed point in time at which par ties and the ba

nkruptcy court can evaluate what assets are included or excluded from proper ty of the estate. Sec tion 541(a) clea rly establishes this point as the commence ment of the c ase. The ref ore, only 401(k) c ontributions wh ic h a re be ingma de at th e c omm e ncemen t of the c a se are e xclu de d f

ro m pr op e rt

y of the e state under § 541( b)(7) . The Pane l is not concluding that property which the de btor acq u i re s af t er the

c omm e nc e me nt o f t

he c a se is no t subje c t to the B ank ru ptc y Cod e . Ins te a d, the Pane l ho lds that a debtor’s a

bility to exclude property

acquir ed post-petition from the c lai m s o f cr editors is not controlled by

11 U.S.C. § 541.8

This Panel’s construc tion of § 541(a ) and (b) is consistent with the manner in which

“ pr op e rt y of the e state ” is de fi ne d in a Cha pte r 1 3 b ank

ru ptc y pr oc e e din g . Se c tio n 1 30 6 p ro vid e s: (a ) P ro perty of the e state inc lud e s, in a dd iti on to t he pr op e rt

y specifie d in section 541 of this titl e - (1) a ll property o f t he kind spec ified in such sec tion that the debtor a cquire s after

the commenc ement o f the ca se but be fo re the c a se is clo sed, di smi sse d, or c onve rt e d to a

c a se un de r c ha pte r 7, 11 , or

12 of thi s ti tle wh ic he ve r o c c ur s f ir st; and (2) e arning s from ser

vices pe rfor

med by t h e d ebtor a fter the commence ment of the c ase but before the ca se is closed, dismiss ed, or c onverte d to a ca se under chapte r 7, 11, or 12 of this ti tle whicheve r occ urs first.

11 U.S. C. § 13 06

. No ta bly , th is s e c tio n, wh ic h a dd re sse s p ro pe rt

y and e arn ing s th at c ome int o exis tence after

the debtor f

iles a petition for re lief does not exclude 401(k) contributions from pr op e rt y of the e state

. Rathe r, 40 1( k) c on tr ibutio ns are on ly e xclu de d in

§ 5 41 wh ic h s pe c if

ic a lly applies to proper

ty in exi stence at the commenc ement of the case
. Be ca u s e Cong ress identified 401(k) c ontributions as ex cluded in § 541, but not in § 1306, the P anel concludes that the abse nce
o f any ref ere nce in § 1306 to 401(k) contributions was intentional. Hildebrand v. Pe tro ( I n re Pe tro ), 395 B .R. 369, 375 ( B.A .P. 6th Cir. 2008) (“I f a statute uses a particula r phrase in one sec tion, but not in another, cour

ts should assume the inclusion or exclusion t o h av e bee n intentional.”) Congr ess did not inte n d fo r i n come which become s available post-petition to be excluded from proper ty of the c hapter

13 estate or

from the c alculation of pr ojected disposable income.
Th e Pane l’ s con c lus ion that § 5 41 (b )( 7) do e s n ot e xclu de inc ome wh ic h b e c ome s ava ila ble post-petit i o n in order to star t making c ontributions to a 401(k) plan, is also supported by the languag e in § 541(b)( 7) and its re fer ence only to “disposable income.” Conspicuously , § 541(b)( 7) makes no re fer en ce t o “proje cted disposable inc ome.” Projec ted disposable income is ba sed on debtor’s inc ome as of c onfirmation and a lso allows for “c onsideration of r easona bly cer tain future events.” Nowli n v. Pe ake ( In reNow lin ), 57 6 F .3 d 2 58 (5 th C ir . 2 00 9)

. Ha d Co ng re ss i nte nd e d to protec t inco m e whi ch bec omes ava ilable after the petition is filed, Congre ss could easily have9

wr itt e n § 54 1( b) (7 ) to re a d “ any amou nt wi thh e ld by an e mpl oye r .
. . sh a ll n ot c on sti tut e dis po sa ble income as define d in 11 U.S.C. § 1325(b)( 2) or projec ted disposable income under § 1325(b)( 1)(B ).” Income whic h become s available afte r t he fili ng of a case is “proje cted disposable income” a nd that incom e is n ot e xclu de d f

ro m pr op e rt

y of the e state . Pr oje c te d d isp os a ble inc ome mus t be us e d to pa y c re dit or s p ur su ant t o § 13 25 (b )( 1) (B ) a nd may no t be us e d to c omm e nc e makin gpa y me nts to a 401(k) plan.
This Pane l’s construction of § 541(a) and (b) and § 1325 is a lso c onsistent with t h e s t ated objective of BA P C P A. A primary objective of

BA PCP A, insofar

as consumer

bankruptc y

was
conce rned, w as to “e nsure that de btors repa y cr edit ors the maximum they can a ffor d.” H.R. Rep. No . 109 -3 1, pt. 1, at 2 (2 00 5) , U.S. Cod e Con g . & Admin . N e ws 20 05 , p p. 88 , 8 9. B APC PA a lso included var ious c o n s u m er p rotec tion refor ms. I t “allows debtors to shelter from the c laims of

cre ditors c erta in e ducation I RA plans and retire ment pension funds.” Id

. BA PCP A also “e x pands a debtor ’s ability to e x empt cer tain tax-qualified retire ment acc ounts and pensions.” Id

. at1 0 4

. In
e xpla ini ngthe imp a c t of

B APC PA, Con g re ss state d that “[t]he ne w pr op e rt y -v a lue lim itatio ns c ou ld make more money

available to cre ditors in some c as es , whi le the exemptions on some retirement . . . saving s g ener ally

would make less money

available .” Id. at 115.
In re gar d t o retirement saving s, Congr ess clea rly intended to strike a ba lance betwee n protec ting debtors’ ability to sa ve for their retire ment and requiring that debtors pay their cr editors the maxim um amount they can affor d to pay . This balance is best achieve d by permitting de btors who ar e makingcontributions to a Qualified Plan at the time their ca se is filed to continue making contributions, while requiring debtors who are not makingcontributions at the time a ca se is filed to commit post-petition income which bec omes ava ilable to the re pay ment of cr editors rather than their own re tirement plan. To c onclude other wise enc oura ges the improvident behavior that BA PCP A soug ht to discourag e. I f the ba nkruptcy court is af

firm ed , d ebtors who were not
c on tr ibutin gto t

he ir tax qua lif

ie d p lan a nd bo rr ow inga g a ins t th e ir

own r e tir e me nt s avin g s ma y fi le bankruptc y , repa

y themselves, and, onc e the loan is re paid, start contr ibutin g aga i n to their own

re tir e me nt s avin g s. Al low ingde bto rs to d o s o w ou ld t ip the de lic ate ba lanc e str uc k b y B APC PA impermissibly

in favor of

debtors. On the othe r hand, a llo wi n g d eb tors who ar e makingT he d i ss ent argues t hat t he m ajo ri t y rul i ng “unf ai rl y d i scr i m i nat es agai nst l o w i nco m e d eb t o rs i n f avo r of hi gh 1 inc o m e d e b to rs .” T h e d isse n t f a ils t o p ro v id e a n y su p p o rt fo r th is c o n c lu so ry sta te m e n t. T h e m a jo rity no te s tha t i ts r u l i n g doe s n ot di s cr i mi n at e b et ween hi g h a n d l ow i n come f i l er s
. T h e opi n i on s t at es on l y t h at de bt or s w h o a r e n ot m a k ing c o n trib u tio n s o n the d a te o f f ili n g c a n n o t use inc o m e w h ic h b e c o m e s a v a ilab le a fter a 4 0 1 (k ) lo a n is re p a id , t o sta rt m a k ing c o n trib u tio n s to a re tire m e n t p la n . T h e m a jo rity o p inio n d o e s n o t eith e r e x p a n d o r n a rr o w the a v a ilab ili ty o f § 5 4 1 (b )( 7 ) a n d it d o e s n o t d isc rim ina te a g a ins t an y c la ss o f d e b to rs
. 10 contributions at the commenc ement of a case to continue makin g t hose contributions furthe rs the g oal of e ncoura g ing r etireme nt saving s. L imiti ngthese prote ctions to contributions in pl ace at the time debtors file their pe titions also protec ts the g oal of e nsuri n g that debtors pay cre ditors the

m a x i mu mam o un td e b t o r s c ana f f o r d t o p ay. 1

B . Di s p o s a b l e I n co me a n d Pro je ct ed Di s p o s a b l e I n co me
The ba nkruptcy court a lso e rre d in c onfirming the Debtors’ proposed plans beca use the plans d o not comply

with the projec ted d is p o s a b le in c o me r e qu ir e me n t o f § 1 3 2 5 ( b ) ( 1 ) ( B )

. U n d e r that section, if the c hapter

13 trustee or

an unsec ured c reditor objec ts to confirmation of a de b t o r’s

c ha pte r 1 3 p lan, a

c ourt may no t con fi rm the pla n unle ss the de bto r pay s unse c ur e d c re dit or s th e fu ll

va lue of the ir c la ims or

“ the pla n p ro vid e s th at a ll o f t

he de bto r’ s projected disposable income to be

rec eived in the a

pplicable c ommitm ent per iod . . . will be applied to make pay ments to unsecure d

cre d it o r s un d e r

th e p la n
. ” 1 1 U

. S. C. § 1 3 2 5 ( b ) ( 1 ) ( A ) an d ( B ) ( e mp h a s is a d d e d )

. T h e b an kr u p tc y court must calc ulate the de btor’s projec ted disposable income a nd ensure that the p ro p osed plan applies the e ntire amount t o pay unsecur ed creditors i n order to confirm the plan over a n objection by the trustee or

an unsec ured c reditor.
The ter m “projec ted di sposable income” i s not define d by the B ankruptc y

Code; howeve r, the United States Supreme Court r ece ntly conclude d that a for

war d-lo o k i n g ap p roach should be taken whe reby

“proje cted disposable inc ome” is ca lculated based on bot h debtor’s c ircumstance s as of c o n f i r m at i o n , an d

o n“ c h an g e s i nth e d e b t o r ’ s i n c o m e o r e xp e n s e s th atar e kn o w no r v i rtua lly

cer tain at the time of

confirmation.” Hamilton v. Lanning , __ U.S. __, 130 S. C t. 2464, 2478 (2010);

see also D arrohn v. Hildebrand ( In re Darrohn ), No . 095 49 9,

__ F .3 d _ _, 20 10 WL28 52 25 1 ( 6th Cir. J uly 22, 2010) (r elying on Lanning and holdingthat the bankr uptcy court violated § 1325 when it failed to consider

debtor’s c hang ed cir cumstance s in calculating “proje cted disposable inc ome”)

.11

Be cause repa

y ment of a 401( k) loan duringthe life of the plan can be reasonably anticipated at the time of confirmation, the P anel concludes that post-petition income which bec omes ava ilable af ter 401(k) loans a

re repaid must be considered as projec ted di sposable income available to unse cure d

cre ditors.
Th e Pane l’ s c on c lus ion that inc ome wh ic h be c ome s ava ila ble a ft e r 40 1( k) loa

ns are re pa id is p ro je c te d d isp os a

ble inc ome wh ic h mu st be c omm itt e d to the re pa y me nt of un se c ur e d c re dit or s, is also supported by

two rec ent Court of Appe als’ dec isions out of t he Fifth and Eig hth Circuits. See Lasows ki , 57 5 F .3 d 8 15 ; Nowli n, 576 F.3d 258. Althoug h these c ases we re de cided pr ior to the Supreme Court’s opinion in Hamilton v. Lanning , both courts used the f orwa rd-lookingapproa ch to determine that funds used to repa y 401(k) loans c onstitut ed proje cted disposable inc ome which

mus t be us e d to pa

y un se c ur e d c re dit or s o nc e the 40 1( k) loa ns we re re pa id. B e c a

us e the Sup re me Court has adopted t h e fo rw ard-looking a pproac h as the prope r method of de termining projec ted disposable income f

or purpose s of § 1325(b)( 1)(B ), t he P anel finds the Fifth and Eig hth Circuit cases persua sive.
In Now lin , at the time of filing , the debtor w as makingcontributions to her 401(k) plan in the amount of $1,062.51 and monthly 401(k) loan repa y ments in the amount of $1,134.79. The 401(k) loan would be r epaid a fter two year s. Debtor’ s plan proposed c ontinuing her 401(k) c ontributions and loan repa

y ments, but did not pr opose incre asing her chapte r 13 plan pay ments by $1,134.79 -- the amount which would become available afte r she completed re pay ment of her

401(k) loan. T he trustee objec ted to debtor’s pr oposed plan on the grounds that the plan did not comply with the pr oje c te d d isp os a

ble inc ome re qu ir e me nt o f 1 1 U .S. C. § 1325 (b )( 1) (B ) be c a us e it did no t c omm it the fu nd s w hic h b e cam e avai la ble a ft e r t he 40 1( k) loa

n w a s r e pa id t o th e pa

y me nt o f c re dit or s. Now lin , 576 F.3d at 260-61.
The ba nkruptcy court sustained the trustee’ s objection and de nied confirmation of debtor’ s plan holding that the debtor’s f ailure to allocate ascer

tainable projected income to repa y ment of her

cre ditors made her

plan unconf

irmable unde r 11 U.S.C. § 1325(b)(1) (B ). Both the district court a nd the F if th C ir c uit Court of Ap pe a ls a ff

ir me d th e ba

nk ru ptc y c ourt . T he F if

th C ir c uit con clude d it s op ini on by statin g :12

The pa rties in this case dispute whe ther ba nkruptcy courts may

consider a

future event that is re asonably

cer tain to occur

at the time of proje ctingthe debtor’ s disposable income. For the reasons stated, we conclude that bankruptc y courts may c o n s i d e r s u c he v e n t s an da d

j u s tp r o j e c t i o n s o f

d i s p o s a b l e i n c o m e a c c o r d i n g l y. B e c a us e No wl in ’s pro po se d p lan d id n ot i nc lud e a ll o f h e r “ pr oje c te d d isp os a ble income” in pa

y ments to c reditors following the repa y ment of her

401(k) loan, which w a s r e a s o n ab l y c e rt a i nt o o c c ur o no r b e f o r e th e tw e n ty- f

o urthm o n tho f

h e r s i x tymonth plan, the bankruptc y court proper ly denied confirmation under § 1325(b) (1).

Id. at 267.

In Lasows ki, the debtor w as makingboth a 4 0 1 (k ) l oan pay ment and a r egular 401(k)

c on tr ibutio n at th e tim e sh e fi le d for ba nk ru ptc y . Th e 40 1( k) loa

n wou ld be pa id of

f wit hin the fi rs t 13 months of her 60 month plan. T h e t ru s t ee objected to c onfirmation of the de btor’s plan contendingthat debtor’s f ailure to c ommit t he additional income r esulting f rom the repay

ment of her loans to he r chapte r 13 plan violated 11 U.S.C. § 1325(b)( 1)(B ). The ba nkruptcy court ove rruled the trustee’ s objection and c onfirmed the pla n. Lasows ki , 575 F.3d at 818. The Eig hth Circuit BAP

re ve rs e d th e ba

nk ru ptc y c ourt and the Ei g hth Cir c uit Court of Ap pe a ls af fi rm e d the Ei g hth

Cir c uit BA P. The Court of Appea ls stated:
The c ourt in Now lin thus affirme d a bankr uptcy court’s de nial of conf

irmation when a debtor ’s plan fa iled to take into acc ount the rea sonably cer tain future te rmination of the debtor’s 401(k) loan repay ments duringthe term of the debtor’s pr oposed plan. Simi larly here , even if

L asowski is corr ect that it is appropr iate for he r to exclude the e nti re $1 50 sh e is c ur

re ntl y re pa yingon he r 4 01 (k ) loa

ns fr om he r dis po sa

ble inc ome o n F o rm 2 2 C , th e b an krup t cy co urtco u l d

n o ti gn o re , wh en ca l cu l at i n g p r o je cted dis po sa ble inc ome , th at th e se pa y me nts wo uld

re du c e to $ 10 0 p e r m on th a ft e r s ix months and

e nd c omp le te ly

a ft e r t hir te e n mo nth s. On ly by takin g int o a c c ount t his fa c t c ou ld t

he ba nk ru ptc y c ourt ’s de te rm in ati on of pr oje c te d d isp os a

ble inc ome a c c ur ate ly

re fl e c t L a so ws ki’ s a

bil ity to p ay he r u ns e c ur e d cr e dit or s o ve r t

he c ours e of her plan.

. . . . Inte rpre ting “ projec ted disposable income” to rec og nize the rea sonably cer tain future termination of loan r epay ments does not requi re L as o wski to propose a pla n that c ha ng e s th e te rm s of he r 40 1( k) loa ns
. No r do e s it d e pr ive he r o f s uf fi c ie nt f un ds to re pa y the loa ns , f or sh e is f re e to p ro po se a

tie re d p lan th at in c re a se s p ay me nts to unsecur ed cr editors af

ter the 401( k) pay

ments have c ease d.F o r e .g., the lo ss o f em p lo ym e n t, In re L a v in , 42 4 B

. R

. 55 8 ( B ank r
. M

. D

. Fl a. 20 10 ) ; or w her e a debt or h as 2

a m e d ic a l c o n d iti o n tha t m igh t ha ste n the ir re tire m e n t, I n r e J on es , N o
. 07

- 1 0 9 0 2 , 20 0 8 W L 4 4 4 7 0 4 1 (B ankr. D

. K an. Se p t

. 2 6 , 2 0 0 8 ); or w h er e a debt or i s r equ i r ed t o ma k e a man dat or y pe r ce n t ag e con t r i bu t i on a s a c on di t i on of e m p lo ym e n t. 13 Id. at 819, 820. The Court of Appea ls reve rsed the bankruptc y court’s confirmation of debtor’s pla n and re manded the c ase ba ck to the bankr uptcy court.
Pursuant to the S upreme Court case of Hamilton v. Lanning , “proje cted disposable inc ome” is based on a de btor’s c ircumstance s at the time of conf irmation as well as on “ chang es in the debtor’s inc ome or e x penses that a re known or virtually cer

tain at the time of conf

irmation.” 130 S. Ct

. at 2 4 7 8

. T h e c o urts in Nowli n an d Lasows ki both found that termination of 401(k) loan pay ments duringthe life of a chapter 13 plan was a “rea sonably cer tain future” event that must be considere d in an ana ly sis of a plan unde r § 1325(b) (1)( B)

. Lasows ki , 5 75 F .3 d at 92 0; Now lin , 576 F.3d at 267. Consis tent with t h es e i n terpre tations of “proje cted disposable inc ome,” the Pane l conclude s that to obtain confirmation of a chapte r 1 3 p l an , d ebtors are re quired to commit the income which be comes available a fter thei r 4 0 1 (k) loans a re r epaid to the pa

y ment of unsec ured

c re dit or s.
Th e dis se nt s tr ay s f

ar fr om the na

rr ow ru lin gof

the ma jor ity op ini on . T he dis se nt r e pe ate dly argues that the majority

opinion establishes an “irr ebuttable pr esumption” that a debtor may never
c omm e nc e or

inc re a se c on tr ibutio ns to a tax qua lif

ie d ret ir eme nt p lan a ft e r c on fi rm atio n o f t he ir Chapter 13 plan. The majority opinion cre ates no such presumption. The majority ruling only holds that 11 U.S.C. § 1325 (b)( 1)(B ) prec ludes confirmation of a Chapter 13 plan which pr ovides as par t of the plan, that income which become s available afte r a 401(k) loan has been repa id, must be used to commence or incre ase c ontributions to a Qualified Plan. Ther e is nothing in the ma jority opinion that would preve nt a debtor f rom makingan ar g ument afte r conf irmation that a cha

ng e in debtor’ s circ umstances justified committi ngincome to a Qua lified Plan.

214 C. G ood Faith
F ina lly , th e Tr

us te e c on te nd s t hat the De bto rs have no t pr op os e d th e ir pla ns in g oo d f

a ith beca use they could pay

substantially

more into their plans onc e their 40 1 (k) loans are r epaid, but instead ar e see king sole ly to contribute to their 401 (k) plans to the de triment of their unsec ured

cre ditors. The bankr

uptcy court made no finding s of fa ct on this issue. I n light of the Panel’s conclusion that the De btors’ propose d plans should not have bee n confirme d beca use they cannot
commence makingcontributions to their 401(k) plans once the loans are repa id, the P anel need not

rea ch the mer its of the Trustee ’s appe al on the issue of g ood faith.
V. CO NC LU SION
In conclusion, post -petition income which become s available afte r a debtor re pay s a 401(k) loa n is no t e xclu de d f

ro m pro pe rt

y of the e state un de r § 54 1( a ) a nd (b ), is p ro pe rt

y of the e state in a cha pter 13 c ase pur suant to § 1306 (a ), an dis projected disposable income which must be

comm itted to the chapter 13 plan pursuant to § 1325(b) (1)( B) . Once the Debtor s, Seafor t and Schuler, have re paid t heir 401(k) loans, the funds whic h become available must be committed to the pla n f or the re pa y me nt o f u ns e c ur e d c re dit or s.
Th e ba nk ru ptc y c ourt is re ve rs e d. Th e se c a se s are re mand e d f or pr oc e e din g s c on sis te nt w ith this opini on.15

MA RI L YNSHE A- STO NU M, B ank ru ptc y Ap pe llate Pane l Judg e , d iss e nti ng . T his c a se is befor e the Pane l on an appe al of the ba nkruptcy co u rt ’s conf

irmation of the De btors’ cha pter 13 plans. Confirmati on of plans is g overne d by 11 U.S.C. § 1325. The Trustee has alleg ed that the De bto rs ’ p lans do no t c omp ly wi th § 13 25 (b )( 1) (B ), the “ be st e ff or ts” re qu ir e me nt, wh ic h p ro vid e s: (b)( 1) I f the trustee . . . objects t o the confirmation of the plan, the n the cour t may not approve the plan unless, as of the ef fec tive date of

the plan–

. . . . (B ) t

he pla n p ro vid e s th at a ll o f the de bto r’ s pr oje c te d dis po sa ble inc ome to be re ceive d in the applicable commitment period beg inning on the date that the fi rs t pa

y me nt i s d ue un de r t he pla n w ill be a

pp lie d to make pa

y me nts to unsecur ed cr editors under the plan. Th e ba sis of

the Tr us te e ’s ob je c tio n is the a sse rt ion that the De bto rs ’ pla ns do no t app ly

a ll o f t he ir pr oje c te d d isp os a

ble inc ome to t

he pa y me nt o f u

ns e cure d c re dit or s. Ho we ve r, in f ra min gthi s qu e sti on , th e Tr

us te e ma sk e d h e r o bje c tio n a s so me thing in a dd iti on to t he be st e ff

or ts a na ly sis

. Relying on a series of statutory provisions that are not releva nt to the best eff

orts deter mination, the Tr us te e ur g e d the Pane l to a do pt an ir re butta ble pr e sumpt ion

that c ha pte r 1 3 d e bto rs wh o in c re a se
or commenc e contr ib u t i o n s t o retire ment saving s plans descr ibed in 11 U.S.C. § 541(b)(7) (“ Qu a lif ie d Plans ” ) a ft e r the ir c a se s are fi le d are de e me d no t to be a pp lyinga ll p ro

je c te d d isp os a

ble income to pay

their unsec ured c reditors unde r their c hapter 13 plans. For

chapte r 13 debtors who

w e r e n o t m ak in gc o n tr ib u ti o n s to Q u a li f ie d Pl a n s ( “ Q u a li f

ie d Co n tr ib u ti o n s ” ) w h e nth e y f il e d for bankruptc y , this would automatically fore close a

ny ability to make Qua lified Contributions during the three to five y ear

period that their c hapter

13 case s will be pending

. Even for debtors who had been making Qualified Cont ributions prior to filing, this would cap the ir Qualified Contributions at tho se pr e -f

ili ngle ve ls. In s ho rt , a c c e pta nc e of the Tr us te e ’s argume nt g ive s r ise to a n ir re butta ble pr e sumpt ion

that th e le ve l of

c ha pte r 1 3 d e bto rs ’ Qua li fi ed Contr ibutio ns a s o f t he fi lin gof

the ir

case s is a ll th at is n e c e s s ar y to th e s u

p p o rt o f d e b to r s an d th e ir d e p e n d e n ts

. T h e re simply is no mention of any

such cap or fix ed limit on Qualified Contributions in the releva nt Ba nkruptcy CodeF o r o the r p u rp o se s, Q u a lif ie d C o n trib u tio n s a re c a p p e d b y E R IS A

. 1

16 provisions. Be cause I am convinced t hat the B ankruptc y Code neither r equire s nor lends statutory 1

su pp or t to the c re atio n o f s uc h a n ir re butta ble pr e sumpt ion , I

re sp e c tf ull y dis se nt.
The assertion in the m ajority opinion that their hol ding doe s not equate to the a doption of an ir re butta ble pres um pt ion do e s n ot w ith sta nd e xami natio n. Th e qu e sti on ra ise d in the se a pp e a ls,

re du c e d to its mos t ba sic fo rm , is wh e the r t he De bto rs are de vo tin ga ll o f t he ir pr oje c te d d isp os a

ble inc ome to fu

nd the ir c ha

pte r 13 pla

ns
. Th e ba

nk ru ptc y c ourt pro cess ed this factual i n qu i r y, deter mined that the plans i n both case s satisfied t his statutory require ment, and, no other objections

rema ining outstanding , confirme d the plans. The major ity does not find that the bankr uptcy court’s fa c tua l det erm inat ion

wa s in c or

re c t ba se d u

po n th e De bto rs ’ v ari ou s in div idu a l c ir c ums tanc e s. Rathe r, the ma

jor ity pr oc e sse s this fa c tua l inqu ir y by su bs tit uti nga le g a l c on c lus ion , i. e ., that th e ir

re a din gof

the B ank

ru ptc y Co de pr oh ibi ts pe r sechapte r 13 debtors f rom incre asingQualified Contr ibutio ns ov e r t

he lif e of the ir pla ns
. R e s o l ut ion

of thi s a pp e a l sh ou ld t

ur n o n th e int e rp re tatio n o f t

he phra se “ pr oje c te d d isp os a ble inc ome ,” wh ic h d e fi ne s th e “ be st e ff or ts” te st. Th e Tr

us te e ins te a d in iti a lly fr ame d th e iss ue in t his

c a se to b e a

bo ut p ro pe rt

y of the e state , a

rguin gfr om a

va ri e ty of Cod e se c tio ns , in c lud ing11 U. S.C. §§ 541(a) , 1306, and 1322. The se se ct i o n s are not releva nt to the issue now befor e the Pane l be c a us e , a lth ou g h s he do e s h e r b e st t o o bs c ur e he r s tatut or y pr e dic ate , th e Tr

us te e ’s ob jection i s based on § 1325( b)(1) (B ), which doe s not refe renc e prope rty of t h e es t ate or

any of these Code

se c tio ns
. Since the Panel hea

rd ar g ument in this case, the Supre me Court decide d Hamilton v. Lanning ( In re Lanning) , ___ U.S. ___, 130 S. C t. 2464 (2010), in which it deter mined that courts ar e to take a “f o r w ar d

- lo o k in ga

p p r o a c h , ” r ath e r

th ana me c h an ic a l a

p p r o a c h , to th e c a lc u lati o no f p r o je cted di s p o s able income

. Id. at 2475, and the Sixt h Circuit decided the direc t appea l in Darrohn v. Hildebrand (

In re Darrohn) , No. 09-5499, ___ F .3d ___, 2010 WL2852251 (6th Cir. J uly 22, 2010), in which it ap p l i ed Lanning to b oth the re ve nu e and

e xpe ns e fa c tor s in

the pr oje c te d d isp os a

ble17

income ca lculation. As addre ssed in Lanning and Darrohn , the sta rt ingpo int

fo r a na ly zingwh at is projec ted disposable income in a ny chapte r 13 ca se is identified in 11 U.S.C. § 1325(b)(2): (2) For purposes o f t his subsection, the term ‘disposable income’ me ans cur rent monthly income rece ived by

the debtor . . . . le ss amounts reasona bly nece ssary to be expended– (A)( i) for the maintenanc e or suppor t of the debto r o r a d ep endent of the debtor, or for a domestic support obligation, that first bec omes payable a fter the date the petition is filed;

. . . . 11 U.S.C. § 1 3 2 5 ( b ) ( 2 )

. B e c a u s e th e T r

u s te e d id n o t r a is e th e g o o d

f a it ho f th e D e b to r s in

e ither

case , see inf

ra , h e r o bje c tio n r e sts e nti re ly on he r a sse rt ion of an i rr e butta ble pr e sumpt ion . In it s starkest ter

ms, that presumption is that contributions t o Qualified Plans ar e neve r reason ably

nece ssary to the debtor’s maintenanc e or support, except to the extent that they are ong oing at the time of filing. H oweve r, t he definition of “disposable income,” as aug mented by § 541(b)( 7), belies th i s as s u mp t i o nb y

ex p l i ci t l y

p ro v i d i n g: (b) Prope rty

of the e state does not include -

. . . . (7 ) a

ny amou nt – (A) withheld by an employ er f rom the wa g es of e mpl oye e s f

or pa y me nt a s c on tr ibutio ns (i) to — [t hree differ ent forms of retire ment saving s plans that qualify for tax de fer

ment under the Interna l Revenue Code of 1986]

ex cep t th at s u c h a m o u n t

u n d e r th i s s u b p a r agr a p h s ha ll not constitute disposabl e incomeas def ined in section 1325(b)( 2)[.] 11 U.S.C. § 5 4 1 ( b ) ( e mp h a s is a d d e d )

. Ce n tr a l to th e r e s o luti o n o f th is a p p e a l is d e te r

mi n in gthe meaningof the fina l phrase that beg ins with “except” and w ill be refe rre d to as the “ha ng ing phr ase.” Section 541(b)( 7) is one of a number of B APCP A amendme nts addressingdebtors’ Q ualified Contr ibutio ns and

de bto rs ’ p art ic ipatio n in

Qu a lif ie d Pl ans
. On e thr

us t of the se pr ov isi on s w a s toSee, e. g. , No w l i n v. P eake ( In re N o w lin ), 5 7 6 F.3d 2 5 8 (5t h C i r. 20 0 9 ) ( s ee i n f ra ); In re L a v in , 424 B

. R. 558 2 (B a n k r. M .D . F la

. 2 0 1 0 ) (se e k ing re lief u n d e r ch a p te r 7 d id no t co n stitute a b u se w h e re d e b to r o b ta ine d e m p lo ym e n t p o stpe t i t i on a n d t h e r e a f

t e r be g an maki ng 4 01 ( k ) c on t r i bu t i on s , be c a u s e s u c h a mo u n t s w ou l d n ot be di s po s a bl e i n c om e a v a ilab le to c re d ito rs in a c h a p te r 1 3 ); I n r e G i bs on , N o. 09- 01196, 2009 W L 2868445, a t * 2 ( B an k r
. D

. I dah o Aug

. 31, 2 0 0 9 ) (“ E v e n if

D e b to rs h a d n o t d e c id e d to b e g in m a k ing c o n trib u tio n s to the ir 4 0 1 (k ) p la n un til a fter the y fi le d the ir b a n k ru p tc y p e tit io n , the c o n trib u tio n s w o u ld still no t b e c la ssified a s d isp o sa b le inc o m e .” ); I n r e J on es , N o. 07- 10902, 2008 W L 4 4 47041 ( B an k r
. D

. K an
. Se pt

. 26, 2008) ( r ef u s i n g t o f

i n d l ac k of

g ood f ai t h ba s ed on pos t

- pet i t i on co m m encem ent of 4 0 1 (k) co nt ri b ut i o ns al o ne, where ret i rem ent p l an changed p o st

- p et i t i o n so t hat em p l o y er would no lo n g e r c o n trib u te un le ss d e b to r a lso c o n tr ib u te d ) ; M a ti , 390 B

. R

. 11, 17 (an al y zi ng debt or’ s proposed pl an, wh i ch p rovided f

o r i ncreased 4 0 1 (k) co nt ri b ut i o ns, unde r t he § 13 2 5 (a)( 3 ) goo d f ai t h requi rem ent and c o n c lud ing that t he “D eb t o r i s m erel y t aki ng ad vant age o f what t he l aw al l o ws.”) ; I n r e Shel t on , 370 B

. R. 861 ( B an k r
. N

. D

. G a. 2007) (h o ld ing tha t d a te tha t d e b to r b e g a n c o n trib u tio n s w o u ld b e re le v a n t to g o o d faith , n o t to d isp o sa b le inc o m e ); B axt er v. Johns on ( I

n r e Johns on ), 34 6 B

. R

. 25 6 , 26 3 (B ankr. S.D

. G a. 2 0 0 6 ) (deb t o rs who i ncreased t hei r 40 1 (k) co nt ri b ut i o ns “m a y fun d 4 0 1 (k ) p la n s in g o o d faith, so lo n g a s the ir c o n trib u tio n s d o n o t e x c e e d th e li m its l e g a lly p e rm itt e d b y the ir 4 0 1 (k ) p la n s.” ); but s ee I n r e Pr igge , N o
. 09

- 6 1 5 4 5 , 20 1 0 W L 8 1 7 2 8 , at * 9 n. 5 (B ankr. D

. M o nt

. M ar. 4, 20 1 0 ) ( f i nd i ng tha t d e b to rs m a y not m ake 4 0 1 (k) co nt ri b ut i o ns d uri ng t he l i f e o f a chap t er 13 p l an, regardl ess of when co nt ri b ut i o ns co m m enced ).

I n l i mi t i ng i t s i nqui r y t o 401(k) cont r i but i ons , t he major i t y i gn ores t he po t ent i al l y f ar - r eac hi ng cons equen ces 3

o f i t s ho l d i ng i f

ap p l i ed t o al l Q ual i f

i ed C o nt ri b ut i o ns. D uri ng o ral argument, T rus t ee’ s co unsel was adam ant t hat t here cou l d be n o i n cr ea s e i n Q u al i f i ed C o nt ri bu t i on s
. T h e h ol di n g of t h e maj or i t y w ou l d be a ppl i ca bl e t o a l l f or ms of 18 leg isla t i v el y

o v erru l e d ec i s i o n s th ath adco n s tru edth e B an krup t cy C o d e a s p ro h i b i ting both unalter ed repa y ment of loans from debtors’ retire ment plans and par ticipation in such plans by debtors during the cha pter 13 plan pe riod. See, e .g., Behlkev. Eisen ( In re Be hlke ), 358 F .3d 429 (6th Cir. 2004); An es v . D e ha rt (

In re Ane s ), 19 5 F. 3d

17 7 ( 3d Cir . 1 99 9) ; Ha rsh ba rge r v . P e es ( In re Harshbarge r), 66 F .3 d 7 75 (6 th C ir . 1 99 5) ; In re He ffernan , 2 42 B.R . 8 12 , 8 18 (Bankr. D . C on n. 19 99 ). By “expressly

removing[401(k) contributions] fr o m t he def inition of dispos able income under § 1 3 2 5 ( b ) , . . . Co n g r e s s h a s im p le me n te d

a p o li c y o f p r o te c ti n gan d

e n c o ur a g in gretire ment saving s.” In reMa ti , 3 90 B .R. 11 , 17 (B ank r. D. Ma ss. 20 08 ). As c ourt s outsi de the Sixth C ir c uit repe atedly

have obse rved, chapte r 13 debtors may incre ase or beg in Qualified Contributions during 2 the c ours e of

the ir c ha pte r 1 3 p lans
. Ind e e d, fr om t

he tim e B APC PA wa s ena c te d fiv e y e ars a g o unti l the ma jor ity ’s op ini on

in these two a

ppeals, no c ourt had a dopted t he int erpr etation advocated by the Trustee. The Tr ustee’s int e rp re tatio n s tr a

y s f ar f ro m th e a pp lic a ble Cod e pr ov isi on s and re a c he s a ha rs h and un e ve n r e su lt. Adoption of that interpre tation by the majority ignor es the proof

that these amendments provide of Congr ess’ de termination that retire ment saving s g ener ally are re as o nably

nece ssary

for c onsumer debtors. As discussed inf ra , the majority ’s ass er t i o n t h at the F ifth and Eig hth Circuits have 3Q ual i f i ed P l ans i d ent i f

i ed i n § 5 4 1 (b)(7). Suc h a st ri ct ap p l i cat i o n o f t he i rr eb ut t ab l e p res um p t i o n tha t ab ro g a te s the bankr upt cy cour t ’ s i nqui r y i nt o re as onabl y ne ces s ar y ex pe nse s w o uld prohi bi t i ncr eas es i n c ont r i but i on t hat ar e a co nd i t i o n of d eb t o rs ’ e m p l o y m ent , w hi ch wo ul d o ccur if a d eb t o r recei ved a rai se i n a p o si t i o n that requi red m and at o ry p e rc e n ta g e c o n trib u tio n , t h e re b y inc re a sin g the a c tua l d o llar a m o u n t o f t h e d e b to r’s c o n trib u tio n s. S u c h a re su lt w o u ld ac t ua l l y be m o re re st rict i ve o f ch ap t er 1 3 d eb t o rs’ ab i l i t y t o p arti cip ate in Q ua l i f i ed P l an s t ha n so m e p re-B A P C P A ca se la w . S ee , e.g ., New Y

o rk C i t y E m p l o ye es R et. S

ys. v. S a p i r ( In re T a ylo r) , 2 43 F

. 3d 1 24 (2d C i r
. 2 00 1) ( provi di ng t hat whether co nt ri b ut i o ns are ma nd at o ry s ho ul d be a f act o r i n t he b ankruptcy co urt ’ s ass ess m e n t o f whet her t hey are re a so n a b ly ne c e ssa ry) ; In re D a v is , 24 1 B

. R

. 70 4, 70 7 ( B ank r
. D

. M ont

. 19 99 ) ( “ [ E ] xpens es over whi ch t he debt or h as no co nt rol, or whi ch are necess ary t o t he d eb t o r’ s em p l o y m ent , are und o ub t ed l y ‘ reasonab l y necess ary
. ’ ”) ( q uo t i ng 8 Co l l i er on B an kr up t cy , § 1 32 5. 08 [ 4][ b][ i ] ) )

. Such a r es ul t i s cert ai nl y at o dd s wi t h Congr es s ’ i nt ent t o over r ul e pr eB A P C P A ca se law , w hich i t view ed as o ve rly restri cti ve o f d eb t o rs’ ab i l i t y t o p arti cip ate in Q ua l i f i ed P l an s. 19 int e rp re te d § 13 25 (b )( 1) to pr oh ibi t an upw ard c ha ng e in Q ua lif

ie d Co ntr ibutio ns fr om t

he fi lin gdate level is simply

inacc urate

. The proper analy sis of this iss ue is straig htforwa rd. Disposable inc ome does not include a ny
amou nt w ithhe ld a s a

Qu a lif ie d Co ntr ibutio n. Th is e xce pti on fr om dis po sa

ble inc ome is fo un d in the hang ing phr ase, which, by its refe renc e to § 1325(b)( 2), is nece ssa r il y f o r w a r d-looking and make s no distinction between pre -filingand post-filingQualified C o n t ributions. To make sense of the ha ng ingphra se , it

is im po rt ant to keep i n f oc us that th e iss ue on

a pp e a l is satis fa c tio n o f t

he be st
e f f o rt s r e qu i r e m e n t

. Inc o n tr a s t , th e T r u s t e e ’ s ar g u m e n td e p e n d s o np r o p e rty o f th e e s t at e
. In confirmation of chapte r 13 plans, prope rty of the e state is materia l to the best interests test, not the best eff orts test; the Trustee did not ar g ue in either case that the best intere sts requireme nt was not met, i.e., that t h e De b t o rs’ plans do not propose pay ments in an amount at lea st equal to the nonexempt property

that would be available to satisfy claims wer e the case to proce ed in chapte r 7. The ha ng ingphra se e xplic itl y

pr ov ide s th at th e De bto rs ’ Q ua lif ie d Co ntr ibutio ns are no t disp os able income; its refe renc e to § 1325(b)( 2) is appropr iately rea d as for

war d-loo k ing. It contains no require ment that Qualified Contribut ions had to have been withheld befor e the case commence d and does not indicate that they are cappe d as of the date of fili ng
. Be cause the Trustee failed to show that the pla ns do no t pr ov ide that a ll o f the De bto rs ’ pr oje c te d disp os a ble inc ome wi ll be pa id i nto the ir plans, the bankr

uptcy co u rt d i d not err when it confirme d the Debtor s’ plans over the Trustee ’s contention that the best e ffor ts test had not been satisfied. The majority

beg ins its analy sis with § 541(a) rather than § 1325( b), eve n t h o u g h the Trustee ’s objection i s t h at t h e Debtors’ plans do not satisfy the best ef

forts re quirement. TheSe ct i o n 13 0 6 (a)( 1 ) i ncl ud es “ al l pro p ert y . . . t he d eb t o r acquir es af te r the c o m m e n c em ent of t he case, but 4 bef or e t h e ca s e i s c l os ed, di s mi s s ed, or con v er t ed t o a ca s e u n der ch apt er 7, 11 or 12 .

. . . ”. T h e debt or ’ s pos t

- pet i t i on wag es ar e i ncl uded i n propert y of t he es t at e by § 1306 ( a) ( 2). Q ual i f i ed C ont r i but i ons ar e t ake n f r om t he debt or’ s wag es a n d a re the re fo re p ro p e rty o f t h e e sta te u n d e r § 1 3 0 6 (a )( 2 ). H o w e v e r, a s d isc u sse d a b o v e , w h a t co n stitute s “p ro p e rty o f t he est at e” i s no t rel evant t o § 13 2 5 (b)(1)(B ), t he C o d e sect i o n co nt roll i ng co nf i rma t i o n. A s § 13 0 6 (b) pro vi d es, t he d eb t o r r em ai ns i n po ss ess i o n of al l pro p ert y of t he est at e, excep t as o t herwi se p rovided in t he p l an. T he p l an, i n t urn, m u st p ro v id e fo r th e d istrib u tio n o f all p ro je c te d d isp o sa b le inc o m e to c re d ito rs . T h e re is no re q u ir e m e n t t h a t all p rop ert y of t h e es t at e mu s t be made av ai l abl e t o cr edi t or s i n a ch apt er 13 ca s e. T h e def i n i t i on of t h e es t at e rem ai ns im p o rta n t i n a c h a p te r 1 3 c a se . F o r e x a m p le , t h e e sta te c o n tinu e s to d e fine p a rt o f t h e sc o p e o f t h e a u to m a tic sta y. 11 U

. S. C. § 362 ( a ) ( 3 )

. Ho w e v e r , i t i s n o t r e l e v a n t t o t h e d e b t o r ’ s p r o j e c t e d d i s p o s a b l e i n c o m e , w h i c h i s t h e i n q u i r y of § 13 2 5 (b)(1)(B ).

W hen Co ng r es s es t abl i she d t w o ca t eg o ries o f co nsum er d eb t o rs b ase d up o n w he t he r t he i r i nc o m e is de t erm i ned 5 t o be ab o ve o r b el o w m ed i an i nco m e, it cl earl y art i cul at ed t he t wo cl ass i f i cat i o ns and f

urt her es chewe d t he est ab l i shment o f an y i rreb utt ab l e p resu m p t i o ns, i nstea d all o w i ng f o r co nsid era t i o n o f

num ero us ind i vid ua l f ac t s and circum st an ce s. 11 U

. S. C

. § 70 7(b) ( 3). Certai nl y i n pr ovi di ng f or t hos e t wo cl as s i f

i cat i ons , Co ng r es s was deal i ng wi t h a r at i onal d i st i nct i o n be t ween co nsumer d eb t o rs of d i f f eri ng i nco m e l evel s. I n co nt ras t , unde r the m ajo ri t y ’ s accep t ance o f t he T rus t ee’ s argum ent , d eb t o rs w o ul d b e cl ass i f i ed , a t b est , b y rando m ci rcum st ances and at wo rs t , as an i nvers e m easure o f t hei r need t o be gi n ret i rem ent s avi ngs. T o put i t m i l d l y , t hi s i rr eb ut t ab l e p res um p t i o n rai ses due pro cess que st i o ns 20 majority ’s ana ly sis first addresse s the question of whether post-petition Qualified Contributions are proper ty of the e state without expl ainingwhat r eleva nce this question has to conf irmation of a chapte r 13 plan, s t at i n g “the bankruptcy court c oncluded that . . . c ontributions which commence after the fi lin gof

th e case mus t a lso be e xclu de d f ro m pr op e rt

y of the e sta te .” Ho we ve r, thi s statement is in error ; the bankruptcy court had no need to addre ss or resolve the question of whe ther such contributions are proper ty of the e state. Rather , the bankr uptcy court a ddresse d only

how such Qu al i fi edC o n tri b u t i o n s s h o u l d b e t re at edi nd et erm i n i n g wh ati s p ro j ec t edd i s p osable income , which is the on ly

qu e sti on on a pp e a l. Contin

uin g wi th a dis c us sio n of pr op e rt y of the e state , the ma

jor ity then consider s § 1306, which def ines proper

ty of t he estate in a chapter 13 c ase. N oting the f act that Con g re ss d id no t re fe re nc e Qu a lif ie d Co ntr ibutio ns in § 13 06 , th e ma jor ity c on c lud e s th at Co ng re ss did not intend for Qualifie d Contributions “to be e x cluded fr o m p roperty of the e state or f

rom projec ted disposable income.” The fir st prongof that statement is cor rec t. The second pr ong
a ssume s a

c on c lus ion

that g oe s b e y on d the o pe ra tio n o f § 13 06 . Se c tio n 1 30 6 d oe s n ot d isc us s, define , or addr ess either

projec ted disposable income or disposable income in any way
. Relying on § 1306 as any indication of congressional intent on the que stion of disposable income is a non
se qu itu r. Fur

ther, if Cong ress ha d intended to cr eate the Trustee ’s irre buttable pre sumption, t hat 4 presumption would logic ally have be en included in § 1325( b) or, at a minimum, i n § 541(b)( 7). 5w h ic h the m a jo rity sim p ly i g n o re s. See Vl andi s v
. Kl i ne , 412 U .S. 4 4 1 , 4 4 7 , 9 3 S. Ct

. 223 0, 223 4 (1973 ) ( “ St at ut es creat i ng pe rma nent ir rebutt ab l e p res um p t i o ns have l o ng b een d i sf avo red und er t he D ue P roce ss C l auses o f the Fi f t h and Fo urt eent h A m end m ent s. ”).

In D ar r ohn , t h e Si x t h Ci r cu i t t ook n ot e of t h e i n f o rma t i on t h at c on s u mer de bt or s a r e di r ec t ed t o pr ov i de on F o rm B 2 2 C . T h a t fo rm w a s d e v e lo p e d b y the A d m inistra tive O ff ic e o f t h e U n ited S ta te s T ru ste e p ro g ra m in o rd e r to i mpl eme n t t h e M ea n s T es t

. Par t V I of t h at f or m di r ec t s de bt or s t o “ [ l ] i st a nd d escr i be an y mon t h l y e x pen s es , n ot o t herwi se s t at ed i n t hi s f o rm, t hat are requir ed f o r t he heal t h and welf

are o f y o u and y o ur f

am i l y and t hat y o u co nt end s houl d be an addi t i onal deduct i on f r om y our cu r r ent mo nt hl y i ncome un der § 70 7(b) ( 2)( A ) ( i i ) ( I )

. ” Part V I t hu s provi des d e b to rs w ith the o p p o rtu n ity to d e sc rib e , in te r a lia , ci rcum st ances t hat jus t i f y m axi m i zi ng t hei r Q ual i f i ed C o nt ri b ut i o ns b eyond am o unt s repo rt ed i n i t em 31 of Fo rm B 2 2 C

. A s t he Sixt h C i rcui t ob ser ved i n D ar r ohn , “ [w]hi l e m uch o f t he [Sup rem e] C o urt ’ s anal y si s i n Lanni ng f o cused o n t he i nco m e si d e o f t he p rojected d i spo sable i nco m e f o rmulat i o n, t he hol di ng cl ear l y appl i ed t o ‘ cha ng es i n t he debt or’ s i ncome o r ex p en ses . . . . ’ ” D a rro h n , 2 0 1 0 W L 2 8 5 2 2 5 1 , at *5 (em p hasi s ad d ed i n t he Sixt h C i rcui t op i ni o n) ( ci t at i o n om i t t ed ). N ei t her Lanni ng no r D ar r ohn sup p o rt a d o p t i o n o f t he T r u s t ee ’ s i r r ebu t t abl e pr es u mpt i on w i t h r es pec t t o a pa r t i cu l ar c at eg or y of e x pen s e. And I n ot e ag ai n t h e pr es u mpt i on i s not ar t i cul at ed i n t he B ank r upt cy Co de.

21 The majority

also rea sons that if Congr ess had intende d to ex cl ude Qua lified Contributions from pr oje c te d d isp os a

ble inc ome , it c ou ld have e a sil y ta c ke d the wo rd s “ or pr oje c te d d isp os a

ble inc ome under § 1325( b)(1) (B )” to the e nd of the hang ing phrase in § 541(b)( 7). This sug g estion ignor es the fac t that projecte d disposable income is not de fi ne d in § 1 32 5( b) (1 ). Rathe r, the te rm “ dis po sa ble income” ha s been spe cified not to include Qualifie d Contributions and with re g ard to the statutory p h ra s e, p ro

j ec t ed d i s p o s ab l e i n co m e, th e w o rd“p ro j ec t ed ” i s t o b e gi v en i t s o rd i n ary m ea n i n g. Lanning , 1 30 S. Ct . a

t 24 71 (“ Whe n te rm s u se d in a statute are un de fi ne d, we g ive the m th e ir

or d i n ar y m e an i n g
. ” )

. In d e e d , th e m a j o r i ty ’ s s u g g e s t i o nth atC o n g r e s s s h o u l d h av e t a c k e d

the ir phrase onto § 541(b)(7) bring s into cleare r focus their err oneous assumption that “projec ted d i s p o s ab l e i n co m e” h as s o m e m ea n i n g d i ff er en t th an a p ro

j ec t i o no f “ d i s p o s ab l e i n co m e” th ro u gh

a pp lic atio n o f § 13 25 (b ). Ap pli c atio n o f § 13 25 (b ) c a lls for a case -spec if ic ana ly sis of

wh at is

ne e de d f or the su pp or t of the de bto r a

nd the de bto r’ s d e pe nd e nts

. Th e ma jor ity the n r e a ches th e qu e sti on of dis po sa ble inc ome and

c ite s tw o p ur

po rt e dly supporting c ases. Howeve r, neither of these c ases support the ma jority ’s holding. A lthough many

c a se s (see supra note 2) h av e s i m i l ar f acts to the c ases in this appea l, there a re no c ases that have
rea ched the conclusion that a de btor may make Qua lified Contributions during the course of a chapte r 13 bankruptcy only to the ex tent that such contributions wer e ong oing at the time the petition was filed.22

In Nowli n v. Peak

e (In r e N

o w lin) , the debtor w as contributingto her 401(k) plan and

re pa yinga 40 1( k) loa

n at th e tim e of

fi lin g . 5 76 F .3 d 25 8 (5 th Cir

. 20 09 ) (c ite d in Lanning , 1 30 S. Ct. at 2474, 2475. Howeve r, the F ifth Circuit did not di sturb the bankr uptcy cour t ’s h o lding that “af ter Nowlin had paid off he r 401(k) loan, she could contribute an additional $187.49 to her 401( k) plan , wh i ch wo u l d

b ri n g h er m o n th l y 4 0 1 (k ) c o n tri b u t i o n s t o th e m ax i mu mo f $ 1 , 2 5 0

. 00 per month.” Nowli n, 576 F.3d at 261 (emphasis adde d). Rath er , t h e Fi ft h Circuit ag ree d with the district and bankruptc y

courts’ c onclusion that the additional amounts that would be available to the debtor a fter repa ying he r 401(k) loan, bey ond what wa s used to maxi miz e her 401(k) contributions, should be included in projec ted disposable income tha t must be dis tributed to unsecur ed cr editors. Nowli n is inconsistent with the majority ’s posit i o n
. In Now lin , the debtor w as per mitted to increase her Qu a lif ie d Co ntr ibutio n to the maximum a llo wa ble un de r he r em

plo y e r’ s plan. I t wa s o nly amou nts in e xce ss o f t

hat pa y me nt t hat w e re c on sid e re d pr oje c te d dis po sa ble inc ome and re qu ir e d to be c ome part of the chapte r 13 pay ment afte r the 401(k) loan was r epaid. Id.
Simi larly , in Mc Car ty

v . La so wsk

i ( In re Lasowski ), the de btor was makingpay ments on a 401(k) loan that would be fully repa id during the chapter 13 plan. 575 F.3d 815, 817-18 (8th C ir. 2009). In that case , the re cord is silent as to whethe r or not the de btor proposed to maintain,

commence , or incre ase he r Qua lified Contributions t o a Qua lified Plan duringth e course of he r bankruptc y . Id. The E i gh t h C i rc u i t rea ched only the question of whe ther the “ calc ulation of a debtor’s pr ojected disposable income ca n take into ac count cha n ges in the debtor’ s financia l circ umstances that a

re r easona

bly cer tain to occur

duringthe term of the debtor’s proposed plan.” Id. at 819. That que stion was resolved by the Supreme Court’s holdingin Lanning and is not at issue in this case. Lasows kidoes not support the majority ’s irre buttable pre sumption t hat a debtor may not us e in c o me av a il a

b le a f te r r e p ay me n t o f a 4 0 1 ( k ) lo anto c o mm e n c e o r in c r e a s e Q u a li f

ie d Contributions

. The Supreme Court held in Lanning that “the c ourt may acc ount for cha

ng es in the debtor’ s in c o m e o r e x p e n s es t h at ar e k n own or virtually cer tain at the time of c onfirmation.” 130 S. Ct. at 2478 (empha sis added). A pplication of Lanning

does ca ll for consider ation of how to deploy the portion of the debtor s’ wag es once the 401(k) loa ns have be en repa id. The trial cour t determined,23

implicitl y at least, that the D ebtors’ pr oposed Qualified Contributions are nece ssary to the support of De btors or th ei r depe ndants. The ba nkruptcy court ther efor e cor

rec tly took into account fluctuations in the Debtor s’ dispo s able income resultingfrom the c ompletion of the 401(k) loa n repa y ments and the c hang es to the Debtors’ Qualified Contributions. The majority does not defe r to t he tr ia l c ourt ’s fa c tua l de te rm inatio n, no t on ly in t he se tw o c a se s, but w ou ld s ub sti tut e its a c ro ss the bo ard de te rm inatio n in

a ll f utu re c a se s. Legislative History The languag e now the sour ce of dispute in these ca ses was a dded to the B ankruptc y Code as part of BA PCP A. The majority emphasizes Congr ess’ intention to ensure “debtor s repa y cre ditors the m ax i m u m t h ey can a ffor d,” (H .R. Rep. No. 109-31, pt. 1, at 2 (2005) , U.S. Code Cong. & Admin. News 2005, pp. 88, 89) in support of its holdi ng , claimingits deci s i o n m i rr ors the cle ar leg islative intent of BA PCP A. I t is an unfortunate fac t that the re exis ts virtua lly no rea l leg islative history for the de tailed p ro v i s ions of BA PCP A. See Susan J ensen, A Legislative History of the Bankruptcy

Abuse Prev ention and Consumer Protection Act of 2005 , 79 Am. B ankr. L .J . 485 (2005).
Be cause the plain meaningof the statute unambiguously provi d es that Qualified Contributions are excluded from disposable income, as discusse d above, the re is no nee d to consider leg islative history , wer e any such history

available for the provisions under c onsideration. Ha rtf or d Underwrit ers Ins. Co. v. Union Planters Bank, N.A. , 530 U.S. 1, 6, 120 S. C t. 1942, 1947 (2000) (“[W] hen the statute’ s languag e is plain, the s o l e func tion of the courts – at least wher e the dispositi on require d by

the text i s not absurd – is to enforc e it acc ording t o i t s t erms.”) (interna l quotation marks omitted). Moreove r, the leg islative history does not evince cong ressional intent on this specific issue. The languag e of the statute shows that Congr ess appe ars to hav e b al anced the competingpolicy

priorities of (1) ensuringthat unsecur ed cr editors re ceive the most debtors ca n aff ord to pay and (2) promoting pa rticipation in Qualified Plans. As B APCP A deter mined how that was to be don e, i.e., by

allowingchapte r 13 debtors to e x clude Qua lified Contributions fromT he m aj o rit y op i nio n stat es: 6

I n r ega r d t o re t i r eme nt s avi ng s , Co ng r es s cl ear l y i nt ended t o s t r i ke a bal anc e bet ween prot ect i ng debt ors ’ abi l i t y t o s ave f or t hei r ret i r ement , and r equi r i ng t hat d e b to rs p a y the ir c re d ito rs the m a x im u m a m o u n t th e y c a n a ff o rd to p a y. T

h is bal ance i s be s t achi ev ed by per m i t t i ng de bt or s who ar e m aki ng c ont r i but i ons t o a 4 0 1 (k) p la n a t t h e ti m e th e ir c a se is f iled , to c o n tin u e m a k in g c o n trib u tio n s, w h ile
re q u irin g d e b to r s w h o a re n o t m a k in g c o n trib u tio n s a t t h e ti m e a c a se is f iled to comm i t pos t

-

pet i t i on i ncome whi ch bec om es av a i l abl e, t o t he r epay m ent of
cr edi t or s r at her t han t hei r own r et i r ement pl an.
See s upr a ( emph as i s a dded)

. 24 disposable income, it is not appropr iate for the majority to determine that Congre ss has not struck the rig ht balance betwee n competingpolicies. As succinc tly stated elsewhere : 6

Congr essional intent on this pointis sufficiently plain and is a matter of policy ; as su c h, it do e s no t le a d to an a bs ur d re su lt. Th e g oa l to e xpand re tir e me nt s avin g s is clea r and the result is rea sonable. Ac cording ly , am o u nts withheld from wag es for contr ib u ti o nto a

qu a li f ie d r e ti r e me n t p la

nar e n o t i n c lu d e d

in § 1 3 2 5 ( b)(1) ’s calc ulation of projec ted disposable income. In re She lton , 370 B.R. at 866. The majority

conclude s that to allow debtors to s tart or to incr ease Qualified Contributions afte r re paying a

401(k) loan, but while still in the chapte r 13 case , would tip “the delicate balanc e struck by BA PCP A imper m i s sibly in favor of

debtors.” T his assertion sug g ests that chapte r 13 debtors would use t he ex clusion cre ated by § 541(b)( 7) t o beg in or i ncre ase Qualified Contributions in or der to a

buse the bankruptc y proce ss a nd avoid paying their unsecur ed cre ditors. I t also assumes that th is a bu se c a n b e fa ir ly

pr e ve nte d b y

the ir re butta ble pr e sump ti on th e ma

jor ity no w a do pts

. Howeve r, in light of the clear statutory languag e, the ba lancingof compe ting policy interests is not appropr iately done by the courts. See SEC v. U.S. Realty & Improve ment Co. , 310 U.S. 434, 468, 60 S. Ct. 1044, 1059 (1940) (“[The bankruptc y court’s] function i s to make an equitable distribution of the e state among the cre ditors, but the principle has not be en applied in the se nse that the c ourt may , in its better judgme nt, refuse to awar d the relief which Congr ess has ac corde d the [debtor].”); Gonzalez-Ruiz v. D oral Fin. Corp. ( In reGo nz ale

z-Ru iz ), 341 B.R. 371, 383 n.15 (B .A.P. 1st Ci r.25

2006) (“ [A] court may not a lter rig hts that a debtor ha s been grante d by Congr ess . . . by

deter mining that those rig hts are unf

air or ine quitable base d on the cour t’s distaste for Cong ress’ c hoices.” ).
Abuse of the bankruptc y

proce ss is prohibited by other provisions of the Ba nkruptcy Code and would not be a

betted by any ruling this P anel make s in these ca ses. See 11 U.S.C. § 1307; 11 U. S.C. § 132 5( a )( 3) , ( a )( 7) ; Al t v . U nite d S tates ( In reAl t), 305 F .3d 413, 419 (6th Cir. 2002) (“ The key inquiry [i n a motion to dism iss a chapte r 13 case ] is whether the debtor is see king to a buse the bankruptc y

proce ss.”). Predic tably , m ost of the ca ses consider ing a debtor’s pr oposed

commence ment or incre ase of Qualified Contribut i o n s h av e focused on whe ther the f acts of the particula r case showed a lack of g ood faith. See supra no te 2. Th e re is no re a so n to thi nk that a bu se of the ba nkruptcy sy stem is now unchec ked bec ause BAPCPA statutorily overr uled earlier c ase la

w that a pp lie d b lank e t pr oh ibi tio ns
. What B APC PA did no t c ha ng e wa s th e g oo d f

a ithre qu ir e me nt. The majority ’s re asoningdoes not explain why a cour t should refuse to c onfirm a plan that a debtor ha s p ro po se d in g oo d fa ithif it p ro vid e s f

or the de bto r’ s b e st e ff

or ts t o r e pa y me nt o f c re dit or s, me e ts the “be st interests of cr editors” test of § 1325( a)( 4), and is other wise i n compl iance with the require ments of the B ankruptc y Code, si m p ly

beca use it involves an incre ase in the de btor’s Qualified Contributions.
As other c ases illustrate, de btors fre quently have unusua l c ircumstance s either befor e or af ter their bankr

uptcy case s beg in. The totality of the c ircumstance s approa ch to t he g ood faith inquiry i s a mo re ef

fe ct i v e way o f ba l an ci n g two co n gre s s i o n al p urp o s es – t o p re v en tab u s e a n d

t o en co ura ge retire ment saving s – than is the Trustee ’s irre buttable pre sumption t hat the majority now adopts.
In reLav in , for e x ample, involved a de btor who had at one t i m e m ad e l arg e Qua lified Contr ibutio ns , b ut r e du c e d th e m a s h is d e bts ro se and he str ug g le d to pay

c re dit or s. He e ve ntu a lly stopped makingthe contributions and, af ter losinghis job, filed for bankruptc y . He wa s able to find

e mpl oy me nt po st- pe tit ion and be g an makin g ve ry larg e c on tr ibutio ns (1 9% of his sa lary) bec a us e h e s u f f e r e d f r o m a m e d i c a l c o n d i t i o n th at w o u l d f o r c e h i m t o r e t i r e e ar l y d

u e t o d i s a b i l i ty. Lav in , 424 B.R. 558, 561-62. Under the majority ’s holding, this debtor wo u l d not be able to make any Qu a lif ie d Co ntr ibutio ns duri ng the lif e of his pla

n be c a us e he wa s un e mpl oye d at the mom e nt o f h is bankruptc y

filing a nd conseque ntly

not con t ri buting to a Q ualified Plan. The ba nkruptcy court26

would have no disc retion to make an ex ce p t i on to this rule that the Trustee and the major ity have

c on jur e d. Ind e e d, a ll de bto rs wh os e ba nk ru ptc y fi lin g s ha d b e e n p re c ipi tate d b y an o ng oin gjob los s would be abs o lutely

prohibited from makingQualified Contributions from their post-pe tition

e mpl oy me nt w a g e s, e ven if they ha d b e e n ma

kin gtho se c on tr ibutio ns , o r h a d n ot b e e n e lig ibl e to make c ontributions, at their prior employ ment.
Simi larly , in In re J

ones , the debtors star

ted makingQualified Contributions to the wife’s Qualified Plan a fter f

iling. The court found the re w as n o absenc e of g ood faith base d on the

c ir c ums tanc e s:
Both De btors are fast appr oaching retire ment ag e, and also have medical c onditions that might haste n their re tirem ents . After Debtors f

iled for ba

nkruptcy , the Wife’s e mpl oye r c ha

ng e d it s r e tir e me nt p lan f

ro m on e wh e re it m a de c on tr ibutio ns e ve n if the Wif e did no t to on e wh e re it w ou ld m atc h th e Wif e ’s c on tr ibutio ns but ot

he rw ise make none

.

Jones , No. 07-10902, 2008 WL4447041, at *5 (B ankr. D . Kan. S ep t

. 26, 2008). Unde r the majority ’s interpre tation, these debtors’ pl ans could not be confirmed. These case s do not evidence the abuse that Congr ess soug ht to eradic ate with B APCP A. See also In reGibson , No. 09-01196, 2009 WL2868445, at * 3 ( B ankr. D . I daho Aug . 31, 2009) (c omparingfac tual circ umstances r eleva nt to debtors’ g ood faith in various c ases involvingpost -petit ion increa se or c ommenceme nt of Qualified Contributions). The sug g estion that “[t] here is nothing in the majority opinion that would prevent a debtor from makingan ar g ument afte r conf irmation that a cha

ng e in debtor’ s circu m s t an ce s justified committing income to a Qu al i fi ed P l an ” ig nores se vera l obvious point s. See supra. F ir st, that is pr e c ise ly the ty pe of fa c tua l in qu ir

y that is a pp ro pr iate ly addre sse d in the c on fi rm atio n p ro c e ss pursuant to § 1325(b)( 2)(A) (i), but the majority ’s adoption of t he Trustee’s reading that §§ 541(a) (1)

and 13 06 c on c lus ive ly

inf or m th e amou

nt o f Q ual if

ied Co ntri butio ns that de bto rs may a llo t in

c on str uc tin gc ha

pte r 1 3 plans ina

pp ro pr iate ly

sto ps that in qu ir

y at th e sta rt ingblo c k. Th e ma

jor ity does not articulate why

their method of calc ulating projecte d disposable i ncome in the context of a po st- c on fi rm atio n mo tio n to ame nd a c ha pte r 1 3 p la

n w ou ld n ot b e me t w ithpr e c ise ly the same27

brick-w all response
. Indeed, g iven our re cent holdingin In re Storey , 392 B.R. 266 (B .A.P. 6th Ci r. 2008), which addre ssed the limits of relief a ppropriate ly

g rante d pursuant to 11 U.S.C. § 1329, such

a c ours e of

a c tio n w ou ld b e ine ff

e c tiv e wi th r e sp e c t to e vid e nc e that c ou ld h ave be e n p re se nte d in the conf irmation proce ss. The majority ’s rule, while preve nting c onfirmation of g ood-fa ith debtors’ plans, would not be an e ffe ctive method of e radic atingabuse. H igh- income debtor s who had made larg e Qua lified Contr ibutio ns a s th e ir

de bts mou

nte d w ou ld be abl e to c on tin ue su c h p ay

me nts duri ngthe ir bankruptc y

reg ardle ss of whethe r they had any compelling rea son to make larg e contr ibutions. On the oth e r h and , d e bto rs wh o h a d r e du c e d o r s top pe d the ir Qu a lif ie d Co ntr ibutio ns in a

n atte mpt to pay cre ditors and avoid bankruptc y , like the debtor in Lav in , would be prohibited fr om contributing – truly a part of the “fr esh start” for older debtors near ing r etireme nt – until after they had complete d t h eir plans. Se e, e .g., In reDe v ill ie rs , 3 5 8 B

. R. 8 4 9 , 8 6 5 ( B an kr
. E

. D

. L a
. 2 0 0 7 ) ( “ Co n g r e s s has de te rm ine d th at c on tr ibutio ns to a qu a lif ie d r e tir e me nt ac c ount ar e , by the ir ve ry natur e , r e a so na

ble and necessar

y . By providing for a

debtor' s eventua l retireme nt, retireme nt contributions become pa rt of debtor' s fre sh start.”). T he majority ’s ruling also offe rs no acc ommodation to debtor s for whom chang ed cir cumstance s make ne w or incr ease d post-petition Qualified Contributions rea sonable a nd

n e c e s s ar y. The majority ’s fe ar of g rowing g amesmanship presumes that courts, trustees, and cr editors

are unable to re cog nize unfair manipulation of the ba nkruptcy sy stem. I t replac es the ba nkruptcy courts’ discr etion and judg ment with an irre buttable pre sumption t hat is not articulat ed in t he Ba nkruptcy Code. Fur

thermore , it unfairly

discriminates ag ainst low-inco m e debtors in favor of high- income debtor s. Hig h-income de btors are more likely to have made Qualified Contributions prior to filing their bankr

uptcy petitions and more likely to have the a

bility to eng ag e in pre -petition planning , such as b y b eginningtheir Qua lified Contributions i n anticipation of the f iling. L owincome debtor s, by

c o mp a r is o n , a re le ss likely

to have made Qualified Contributions pre-pe tition and wi ll p ro ba

bly be the mos t f

re qu e ntl y dis a dv anta g e d w e re the ma jor ity ’s ho ldi ngin t

his c a se toSee , e
. g. , R e g ina T . Je ff e rs o n , R ed i st ri b u t i o n i n t h e R eti rem en t S ystem : W

h o Wi n s a n d W

h o L o ses? , 52 H ow. 7 L. J. 283 , 299 ( 20 10 ) ( “ P ar t i ci pat i on r at es among l ow- i ncome work er s i n t he pri vat e ret i r ement s y s t em i s r el at i vel y l ow, a n d c o n tinu e s to d e c line .” ). S ee a lso H a tty Y ip , D o u b le Wh a m m y : H o w th e N e w C re d it C a rd N

o n d isc h a rg e a b ili ty Pr ovi s i on and t he New M eans Te s t H i t Si ngl e M ot hers O ve r t he H ead , 1 5 B uf f

. W o m en’ s L.J. 33 (20 0 6 ) ( “T o t he ext ent tha t l o w e r in c o m e d e b to rs
. . . [p ro c e e d w itho u t c o u n se l] the y w ill g e t c a u g h t m o re tha n d e b to rs w h o ha v e the m e a n s to con s u l t a t t or n ey s
. M os t of t h e ‘ t r aps ’ ar e man ag ea bl e f or debt or s wh o obt ai n compe t en t l eg al adv i ce pr e- pet i t i on
. Low inc o m e d e b to rs ge t ca u g h t b e c a u se no o n e w a rn e d the m to e ithe r w a it to fi le o r n o t t o d o c e rta in th ing s b e fo re the y fi le .” (quo t i ng B ankruptcy Jud ge M aureen T i ghe)).

28 be c ome bin din g
. Th e ma jor ity ’s ho ldi nga lso do es not pr e ve nt a de bto r f ro m dr amatic a lly 7 incre asingQualified Contributions pre-pe tition s o as to meet the r equire ment that contributions be in place be fore the petition is filed. Of cour se, such de btors may fail to show the g ood faith re quired by the B ank ru ptc y Code. How ever, the g oo d f a ithre qu ir e me nt i s a lso we ll- su ite d to ave rt a bu se
commence d afte r the pe tition date. Se e, e .g., So c ’y . Na t’ l. B an k v . B arre tt (

In reBa rre tt), 964 F .2d 58 8, 59 2 ( 6th

Cir . 1 99 2) (h old ingthat a ban kru ptc y c ourt sh ou ld c on sid e r m any

pr e - a nd po stpetition factors in makinga g ood faith dete rmination).
In f a c t, t he g oo d f a ith ana ly sis that cou

rt s alr e a dy a

pp ly to co nf

ir matio n o f p lans wo uld

a pp ly well to situations li ke those pre sented he re. Though Qualified Contributions are not part of disposable income, they

are still rele vant to g ood faith:
Whil e it is appare nt that Congre ss removed c erta in streams of incom e from being considere d disposable income, it does not necessar ily follow that Congr ess intended to handicap the courts’ g ood faith inquiries or unintentionally cre ate a prover bial “loophole” . .

. . BA PCP A expressly limit ed the a

pplication of § 541(b) (7) to one pa rt ic ula r para g ra ph , § 13 25 (b )( 2)

. . . . Ha d Congre ss sou g ht to sof te n th e g oo d f

a ith re qu ir e me nt, a

state me nt t o th at e ff

e c t is c on sp ic uo us ly

a bs e nt.

Shelton , 3 70 B .R. at 86 7; se e als o Jones , 2008 WL4447041, at *4 (we ighingdebtors’ post-pe tition

c omm e nc e me nt o f r e tir e me nt savin g s as a fa c tor in an a ly sis of g oo d f a ith ); but see J

ohnson , 3 46 B .R. at 263 (“ Debtors a

re not re quired to contribute [retire ment saving s contributions] to their Chapter 13 plans. Consequently , in determiningg ood faith under § 1325(a) (3), I

may not consider them.” ). Courts s h o u l d co n sider the totality of the c ircumstance s to determine de btors’ g ood faith. See Ba rre tt , 964 F.2d at 591 ( citing “totality of the circ umstances” test for g ood faith inquiry in a cha pter 1 3 ca s e). A debtor’s pr oposal to increa se or to beg in Qualified Contributions post-petition i s one29

of many circ umstances that may be considere d by a cour t assessingthe debtor’ s g ood faith. See, e .g., Shelton, 3 7 0 B. R

. 8 6 1 (h o l d i n g t h a t p l an p ro p o s i n g l ar ge p ay m en t s t o s ec ure d

cr ed i t o rs an d

l ar ge contributions to retirement savings, but 0% pa y out to unsecure d cre ditors, invite s s crutiny of the debtor’s good f

aith); Gibson , 2009 WL 2868445, at *3 n.5 (sug g esting a situation in which a debtor pr op os e s to c omm e nc e , r athe r t ha n in c re a se , r e tir e me nt c on tr ibutio ns post- pe tit ion may me ri t heig htened sc rutiny). Howe ver, the court mig ht be equa lly suspicious of a high- income debtor who

s ee k s t o m ai n t ai nex ce s s i v e Q u al i fi edC o n tri b u t i o n s th ro u gh o u tth e b an krup t cy p r o c es s , al th o u gh such a de btor would not be af fec ted by the majority ’s holding in this case . In either situation, upon

an o bje c tio n, th e cou rt wou ld h ave to d e te rm ine ho w muc h w e ig ht t o g ive thi s f a c tor and c ou ld

c on sid e r t he ne e ds of

ind ivi du a l deb tor ’s wi th re sp e c t to re tir e me nt s avin g s, su c h a s th os e no te d in the cases cited in note 2, su pra . Among the circ umstances that bankruptc y courts have c onsidered

are :
1. Debtors’ proxi mity to retireme nt, by

virtue of a g e or me dical condition; 2. De bto rs ’ p ri or re tir e me nt savin g s and wh e the r a mou nts a lr e a dy

save d c ou ld b e su ff

ic ie nt t o
su pp or t th e de bto rs a ft e r r e tir e me nt; 3. The likely

cost of living dur ing de btors’ re tirement , c o n s ideringmedical c onditions and other

re le va nt c on c e rn s; 4. Whether debtors ma de contr ibutions previously and dec rea sed them due to job loss, reduc ed inc ome , o r atte mpt s to pa y c re dit or s; 5. Whe the r d e bto rs are c on tr ibutin g amou nts in exc e ss of

wh at th e ir

e mpl oye rs wi ll m atc h, if

an e mpl oye r o ff

e rs matc hin g c on tr ibutio ns , e .g ., wh e the r re qu ir ing de bto rs to f or e g o s ome of the ir c on tr ibutio ns wo uld e sse nti a lly fo rc e the m to fo re g o ane mpl oye r- sp on so re d b e ne fi t; 6. Whe the r d e bto rs have re c e ntl y e xpe ri e nc e d a

c ha ng e in c ir c ums tanc e s r e levan t to t he ir retire ment saving s (new options fr om employ er, ne w employ er pla n, new e mploy er, sudde n decr ease in value of r etireme nt saving s, etc.); a nd 7. The re lative per centa g es of de btors’ income beingcontributed to re tirement saving s and pay ments to creditors.

Ho we ve r, it d oe s no t a

pp e ar that the iss ue of g oo d fa ith is p ro pe rl y be fo re the Pane l in

the se c a se s.30

Good F aith

Th e T r u s t e e a s s e rt s th at th e D e b t o r s h av e n o t p r o p o s e d th e i r p l an s i n g o o d f a i th , b u tthi s argument was ra ised for the first time on appea l. Gener ally , issues raised f or the fir st tim e on appe al

are not properly

deter mined by the appe llate cour

t. Lockhart v. Napolitano , 5 73 F .3 d 2 51 , 2 61 (6 th Cir. 2009). The Trustee claims that the following languag e, in the objections to confirma tion, makes clea r re fer ence to Debtors’ g ood faith: In essenc e, the debtors are proposing that unsecur ed creditors chip in some $9,790.00 fo r M r. Sc hu le r’ s re tir e me nt. Th e pla n must be ame nd e d to sh owtha t pl an p ay me nts will increa se by

the full amount of the [401(k)] loan pay ment in the month after the loan is paid off.
Sc he du le I re fl e c ts a de du c tio n for a 40 1K /r e tir e me nt l oa

n p ay me nt. Th e loa

n w ill be pa id i n fu ll in June 20 10

. Th e pla n mus t be ame nd e d to s ho w that pl an p ay me nts will increa se by

$255 per month startingin J uly 2010. These statements most direc tly ref ere nce the calc ulation of disposable income a nd do not mention g oo d f a ith . T his iss ue wa s th e re fo re no t pr e se rv e d in the se a pp e a ls.
Appellate c ourts may

consider a

rguments first prese nted on appeal in “exceptional ca ses or particula r circumstance s, or whe n the rule [ag ainst doing so] would produce a plain miscar riag e of justice.” Foster v. Barilow , 6 F.3d 405, 407 ( 6th Cir. 1993) ( c ite d in McFarland v. He nderson , 307 F.3d 402, 407 ( 6th Cir. 2002)). The most common instance is when the issue is purely one of law that is presente d to the appellat e co u rtwith sufficient c larity and complete ness that it may be resolved on appea l. Foster, 6 F .3 d at 40 7 ( no tin gthat th e e xce pti on to t he ru le that a

pp e llate c ourt s will not conside r issues first pre sented on a ppeal “ is most commonl y applied whe re the issue is one of law, and fu rt he r d e ve lop me nt o f t

he re c or d is unne c e ssa

ry” ). Th e iss ue of

g oo d f a ith , in c on tr a st, is a fac t-specif

ic inquiry not appropriately addre ssed for the first time on appea l, espec ially wher e the bankr uptcy court recor d shows no discovery and the c ourt made no f

actua l findings on the issue. Se e Ha rd in v . Ca ldw e ll (

In reCal dwe ll), 85 1 F .2 d 8 52 , 8 58 (6 th C ir . 1 98 8) (i de nti fy ingg oo d f

a ith

a s a fa c tua l f ind ingre vie we d f

or cle ar err or ). Th e Tr

us te e argue s th at a ll the fa c ts n e c e ssa ry to deter min e t h at t h e Debtors lack g ood faith ar e prope rly befor e the Pane l based on the ba nkruptcy31

court’s r ecor d. Be cause the deter mination of a debtor’s g ood faith is a fac tual deter mination based on the totality

of the c ircumstance s, this is simply not the case

. “[N]o one factor should be viewed

a s b e inga dis po sit ive ind ic atio n o f t he de bto r’ s g oo d fa ith

. . . . [T]he ‘t ota lity of the c ir c ums tanc e s’ means what it say s: I t e x acts an examination of all the fac ts in order to de termine the bona fides of the debtor.” Id. at 860 (c itation omit ted). Such a n examinati o n n o t h aving bee n soug ht from the ba nk ru ptc y c ourt , t he Pane l ma

y no t no w c on sid e r t

he Tr us te e ’s argume nt r e g ard ingthe De bto rs ’ g ood faith.

F or the se re a so ns , I

wo uld a ff ir m th e ru lin gof

the ba nk ru ptc y c ourt

.