ELECTRONIC CITATION: 2010 FED App. 0009P (6th Cir.)

File Name: 10b0009p.06

BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: DEBORAH K. SEAFORT ) 

)

and )

)

FREDERICK C. SCHULER )

and CARRIE A. SCHULER )

)

Debtors. ) Nos. 09-8062

_____________________________________ ) 09-8063

)

)

BEVERLY M. BURDEN, )

CHAPTER 13 TRUSTEE )

)

Appellant, )

)

v. )

)

DEBORAH K. SEAFORT )

)

and )

)

FREDERICK C. SCHULER and )

CARRIE A. SCHULER )

)

Appellees. )

 )

Appeal from the United States Bankruptcy Court

for the Eastern District of Kentucky

Case Nos. 08-22380 and 08-22417

Argued: May 4, 2010

Decided and Filed: September 14, 2010

Before: BOSWELL, McIVOR, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.
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____________________

COUNSEL

ARGUED: Daniel Hitchcock, WYATT, TARRANT & COMBS, LLP, Lexington, Kentucky, for

Appellant. Michael B. Baker, THE BAKER FIRM, PLLC, Florence, Kentucky, for Appellees. ON

BRIEF: Daniel Hitchcock, WYATT, TARRANT & COMBS, LLP, Lexington, Kentucky, for

Appellant. Michael B. Baker, THE BAKER FIRM, PLLC, Florence, Kentucky, for Appellees. 

____________________

OPINION

____________________

MARCI B. McIVOR, Bankruptcy Appellate Panel Judge. In these consolidated appeals,

Beverly M. Burden, Chapter 13 Trustee (“Trustee”), appeals the bankruptcy court’s ruling that

Debtors may use income which becomes available once 401(k) loans are repaid to commence

making contributions to debtors’ 401(k) plans. For the reasons stated in this opinion, the Panel

concludes that post-petition income which becomes available after a debtor repays a 401(k) loan

must be committed to the chapter 13 plan. Therefore, the bankruptcy court’s rulings confirming the

Debtors’ chapter 13 plans are reversed. The cases are remanded for further proceedings consistent

with this opinion. 

I. ISSUE ON APPEAL

The issue raised in this appeal is whether a chapter 13 debtor who is repaying a 401(k) loan,

but not making any 401(k) contributions at the time the bankruptcy petition is filed, may use the

income which becomes available when the loans are repaid to start making contributions to debtor’s

401(k) plan rather than committing the extra income to repay creditors.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel has jurisdiction to decide this appeal. The United States

District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and neither

party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6),

(c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C.
3

§ 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits and

leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United

States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations and internal quotations omitted).

The order of the bankruptcy court confirming the Debtors’ chapter 13 plans over the objections of

the Trustee is a final, appealable order. Gen. Elec. Credit Equities, Inc. v. Brice Rd. Devs., L.L.C.

(In re Brice Rd. Devs., L.L.C.), 392 B.R. 274, 278 (B.A.P. 6th Cir. 2008).

The bankruptcy court’s legal conclusions, including its interpretation of the applicable

statutes, are reviewed de novo. Brice Rd. Develops., L.L.C., 392 B.R. at 277. “De novo means that

the appellate court determines the law independently of the trial court’s determination.” Treinish

v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (B.A.P. 6th Cir. 2001) (citations

omitted).

The court’s findings of fact are reviewed under the clearly erroneous standard. Riverview

Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007). “A finding of

fact is clearly erroneous ‘when although there is evidence to support it, the reviewing court on the

entire evidence is left with the definite and firm conviction that a mistake has been committed.’ ”

Id. (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S. Ct. 1504, 1511 (1985)).

III. FACTS

On November 20, 2008, Deborah Seafort filed a petition for relief under chapter 13 of the

Bankruptcy Code. On November 25, 2008, Frederick C. Schuler and Carrie A. Schuler filed a joint

petition for relief under chapter 13 of the Bankruptcy Code. At the time the debtors filed their

respective petitions for relief, Deborah Seafort and Frederick C. Schuler (hereinafter collectively

“Debtors”) were both eligible participants in their respective employers’ ERISA qualified 401(k)

retirement plans. The Debtors were not making contributions to their plans at the time they filed for

bankruptcy relief; however, each Debtor was repaying a 401(k) loan. Seafort was paying her loan

at the rate of $254.71 per month, and Schuler was paying $815.86 per month. 

The Debtors each filed a proposed chapter 13 plan which provided for a commitment period

of five years. Under their respective proposed plans, the loans would be repaid in full before
4

completion of the plans. The plans proposed to complete repayment of the loans and then continue

payroll deductions as 401(k) contributions in the same amount as the loan payments. The plan

payments would not, therefore, increase after the loans were paid in full. The Trustee objected to

confirmation of both plans asserting that because the Debtors were not making 401(k) contributions

as of the commencement of their bankruptcy cases the Debtors must increase their plan payments

by the amount of the loan payments once the loans were paid in full. 

The bankruptcy court consolidated the cases to determine whether the Debtors could exclude

their proposed 401(k) contributions from projected disposable income which would otherwise be

paid into their respective chapter 13 plans. On June 22, 2009, the court issued a memorandum

opinion and order concluding that the exclusion was permissible and that the Debtors’ respective

chapter 13 plans should be confirmed without modification. On June 30, 2009, the Trustee moved

the court to alter or amend its order. The Trustee’s motion was resolved by entry of an agreed order

on October 5, 2009, which required the Debtors to provide certain documentary evidence to the

Trustee regarding their 401(k) plans and established certain events which would require amendment

of the plans during the applicable commitment period. The Trustee’s timely appeal followed.

IV. DISCUSSION

Prior to the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act of

2005 (“BAPCPA”), a chapter 13 debtor could not make contributions to a 401(k) plan because such

funds were considered disposable income which had to be committed to the chapter 13 plan.

Harshbarger v. Pees (In re Harshbarger), 66 F.3d 775, 777-78 (6th Cir. 1995). Forthe same reason,

chapter 13 debtors were also prohibited from repaying a 401(k) loan during the life of a chapter 13

plan, regardless of any adverse consequences which might result from nonpayment. Id. The

adoption of BAPCPA, however, resulted in several changes to the treatment of ERISA qualified

employee benefit plans (“Qualified Plans”). In particular, BAPCPA amended § 541 to add

subsection (b)(7) which allows debtors to shelter contributions to certain Qualified Plans from

property of the estate. As a result, a debtor may now exclude contributions to Qualified Plans,

including contributions to a 401(k) plan, up to the permitted amount of the plan from his bankruptcy

estate. In re Nowlin, 366 B.R. 670, 676 (Bankr. S.D. Tex. 2007) (citing In re Johnson, 346 B.R. 256,
5

263 (Bankr. S.D. Ga. 2006)), aff’d, No. 07-2446, 2007 WL 4623043 (S.D. Tex. Dec. 28, 2007),

aff’d, 576 F.3d 258 (5th Cir. 2009). In addition, BAPCPA added subsection (f) to 11 U.S.C. § 1322

which prohibits a chapter 13 plan from altering the terms of a 401(k) loan and excludes “any

amounts” used to repay loans from Qualified Plans from the calculation of a debtor’s “disposable

income.” 11 U.S.C. § 1322(f). In sum, BAPCPA changed the way contributions to Qualified Plans

and loan payments to such plans are treated in chapter 13 cases. 

BAPCPA also made changes to 11 U.S.C. § 1325, the Code section which spells out the

requirements for confirmation of chapter 13 plans; however, the amendments did not directly address

how to treat the income which becomes available when a 401(k) loan is repaid during the applicable

commitment period. The Fifth and Eighth Circuit Courts of Appeal have classified the resulting

available funds as projected disposable income which must be committed to the debtor’s chapter 13

plan. McCarty v. Lasowski (In re Lasowski), 575 F.3d 815, 820 (8th Cir. 2009); Nowlin v. Peake

(In re Nowlin), 576 F.3d 258 (5th Cir. 2009). However, no court has addressed the precise question

presented by this appeal: whether a debtor, who was not contributing to an ERISA qualified plan

when the case was filed, may begin making 401(k) contributions once the 401(k) loan has been

repaid.

The Trustee makes three arguments in support of her position that the bankruptcy court erred

in permitting these Debtors, who were not making contributions to their 401(k) plans at the

commencement of their cases, to exclude the income which became available once their 401(k) loans

were repaid from projected disposable income and then use that income to make contributions to a

401(k) plan. First, pursuant to fundamental rules of statutory construction, the Trustee argues that

chapter 13 debtors may only exclude contributions they are making to a 401(k) plan as of the

commencement of their case from property of the estate and disposable income. Second, the Trustee

asserts that the Debtors’ proposed plans did not comply with the projected disposable income

requirements of § 1325(b)(1). Lastly, the Trustee contends that the Debtors’ plans were not proposed

in good faith. 
6

A. Property of the Estate and Exclusions from Property of the Estate

In determining the meaning of a statute, the Panel must first examine the plain language of

the statute. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S. Ct. 1026, 1030 (1989).

“If the statutory language is unambiguous, . . . that language must ordinarily be regarded as

conclusive.” Reves v. Ernst & Young, 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 what Congress intended.” Koenig Sporting Goods, Inc. v. Morse Rd.

Co. (In re Koenig Sporting Goods, Inc.), 203 F.3d 986, 989 (6th Cir. 2000).

Section 541(a)(1) provides:

(a) The commencement of a case under section 301, 302, or 303 of

this title creates an estate. Such estate is comprised of all the

following property, wherever located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of

this section, all legal or equitable interest of the debtor

in property as of the commencement of the case. 

11 U.S.C. § 541(a)(1) (emphasis added). The definition of “property of the estate” is exceptionally

broad and designed to “‘bring anything of value that the debtors have into the [bankruptcy] estate.’”

Lyon v. Eiseman (In re Forbes), 372 B.R. 321, 330 (B.A.P. 6th Cir. 2007) (citation omitted). While

reaching broadly to bring a wide variety of property into the estate, § 541 also provides for a number

of exclusions. Subsection (b) lists certain interests which may exist as of the commencement of the

case, but are nevertheless excluded from property of the estate. BAPCPA amended § 541(b) by

adding subsection (b)(7) to the list of property which could be excluded from property of the estate.

Section 541(b)(7) states:

(b) Property of the estate does not include -

. . . . 

(7) any amount - 
7

(A) withheld by an employer from the wages of

employees for payment as contributions -

(i) to-

(I) an employee benefit plan that is subject to

title I of the Employee Retirement Income

Security Act of 1974 or under an employee

benefit plan which is a governmental plan

under section 414(d) of the Internal Revenue

Code of 1986;

. . . . 

except that such amount under this

subparagraph shall not constitute disposable

income as defined in section 1325(b)(2)[.] 

11 U.S.C. § 541(b)(7).

In this case, the bankruptcy court concluded that because § 541(b)(7) excludes contributions

to a 401(k) plan from property of the estate and excludes the amount of those contributions from

being considered disposable income, contributions which commence afterthe filing ofthe case must

also be excluded from property of the estate. The Panel disagrees. The Panel concludes that the

language of § 541(a) is clear. Property of the estate under § 541(a)(1) and exclusions from property

of the estate under § 541(b) must both be determined on the date of the filing of the case. As

provided in the statute, § 541(a) specifically states that “the commencement of a case . . . creates an

estate.” Section 541(b) excludes certain property from the definition of “property of the estate.”

Read together, § 541(a) and (b) establish a fixed point in time at which parties and the bankruptcy

court can evaluate what assets are included or excluded from property of the estate. Section 541(a)

clearly establishes this point as the commencement of the case. Therefore, only 401(k) contributions

which are being made at the commencement of the case are excluded from property of the estate

under § 541(b)(7). The Panel is not concluding that property which the debtor acquires after the

commencement of the case is not subject to the Bankruptcy Code. Instead, the Panel holds that a

debtor’s ability to exclude property acquired post-petition from the claims of creditors is not

controlled by 11 U.S.C. § 541. 
8

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

“property of the estate” is defined in a Chapter 13 bankruptcy proceeding. Section 1306 provides:

(a) Property of the estate includes, in addition to the property

specified in section 541 of this title - 

(1) all property of the kind specified in such section that the

debtor acquires after the commencement of the case but

before the case is closed, dismissed, or converted to a case

under chapter 7, 11, or 12 of this title whichever occurs first;

and

(2) earnings from services performed by the debtor after the

commencement of the case but before the case is closed,

dismissed, or converted to a case under chapter 7, 11, or 12 of

this title whichever occurs first. 

11 U.S.C. § 1306. Notably, this section, which addresses property and earnings that come into

existence after the debtor files a petition for relief does not exclude 401(k) contributions from

property of the estate. Rather, 401(k) contributions are only excluded in § 541 which specifically

applies to property in existence at the commencement of the case. Because Congress identified

401(k) contributions as excluded in § 541, but not in § 1306, the Panel concludes that the absence

of any reference in § 1306 to 401(k) contributions was intentional. Hildebrand v. Petro (In re

Petro), 395 B.R. 369, 375 (B.A.P. 6th Cir. 2008)(“If a statute uses a particular phrase in one section,

but not in another, courts should assume the inclusion or exclusion to have been intentional.”)

Congress did not intend for income which becomes available post-petition to be excluded from

property of the chapter 13 estate or from the calculation of projected disposable income. 

The Panel’s conclusion that § 541(b)(7) does not exclude income which becomes available

post-petition in order to start making contributions to a 401(k) plan, is also supported by the

language in § 541(b)(7) and its reference only to “disposable income.” Conspicuously, § 541(b)(7)

makes no reference to “projected disposable income.” Projected disposable income is based on

debtor’s income as of confirmation and also allows for “consideration of reasonably certain future

events.” Nowlin v. Peake (In re Nowlin), 576 F.3d 258 (5th Cir. 2009). Had Congress intended to

protect income which becomes available after the petition is filed, Congress could easily have
9

written § 541(b)(7) to read “any amount withheld by an employer . . . shall not constitute disposable

income as defined in 11 U.S.C. § 1325(b)(2) or projected disposable income under § 1325(b)(1)(B).”

Income which becomes available after the filing of a case is “projected disposable income” and that

income is not excluded from property of the estate. Projected disposable income must be used to

pay creditors pursuant to § 1325(b)(1)(B) and may not be used to commence making payments to

a 401(k) plan.

This Panel’s construction of § 541(a) and (b) and § 1325 is also consistent with the stated

objective of BAPCPA. A primary objective of BAPCPA, insofar as consumer bankruptcy was

concerned, was to “ensure that debtors repay creditors the maximum they can afford.” H.R. Rep.

No. 109-31, pt. 1, at 2 (2005), U.S. Code Cong. & Admin. News 2005, pp. 88, 89. BAPCPA also

included various consumer protection reforms. It “allows debtors to shelter from the claims of

creditors certain education IRA plans and retirement pension funds.” Id. BAPCPA also “expands

a debtor’s ability to exempt certain tax-qualified retirement accounts and pensions.” Id. at 104. In

explaining the impact of BAPCPA, Congress stated that “[t]he new property-value limitations could

make more money available to creditors in some cases, while the exemptions on some retirement

. . . savings generally would make less money available.” Id. at 115. 

In regard to retirement savings, Congress clearly intended to strike a balance between

protecting debtors’ ability to save for their retirement and requiring that debtors pay their creditors

the maximum amount they can afford to pay. This balance is best achieved by permitting debtors

who are making contributions to a Qualified Plan at the time their case is filed to continue making

contributions, while requiring debtors who are not making contributions at the time a case is filed

to commit post-petition income which becomes available to the repayment of creditors rather than

their own retirement plan. To conclude otherwise encourages the improvident behavior that

BAPCPA sought to discourage. If the bankruptcy court is affirmed, debtors who were not

contributing to their tax qualified plan and borrowing against their own retirement savings may file

bankruptcy, repay themselves, and, once the loan is repaid, start contributing again to their own

retirement savings. Allowing debtors to do so would tip the delicate balance struck by BAPCPA

impermissibly in favor of debtors. On the other hand, allowing debtors who are making
The dissent argues that the majority ruling “unfairly discriminates against low income debtors in favor of high 1

income debtors.” The dissent fails to provide any support for this conclusory statement. The majority notes that its

ruling does not discriminate between high and low income filers. The opinion states only that debtors who are not

making contributions on the date of filing cannot use income which becomes available after a 401(k) loan is repaid, to

start making contributions to a retirement plan. The majority opinion does not either expand or narrow the availability

of § 541(b)(7) and it does not discriminate against any class of debtors. 

10

contributions at the commencement of a case to continue making those contributions furthers the

goal of encouraging retirement savings. Limiting these protections to contributions in place at the

time debtors file their petitions also protects the goal of ensuring that debtors pay creditors the

maximum amount debtors can afford to pay.1

B. Disposable Income and Projected Disposable Income

The bankruptcy court also erred in confirming the Debtors’ proposed plans because the plans

do not comply with the projected disposable income requirement of § 1325(b)(1)(B). Under that

section, if the chapter 13 trustee or an unsecured creditor objects to confirmation of a debtor’s

chapter 13 plan, a court may not confirm the plan unless the debtor pays unsecured creditors the full

value of their claims or “the plan provides that all of the debtor’s projected disposable income to be

received in the applicable commitment period . . . will be applied to make payments to unsecured

creditors under the plan.” 11 U.S.C. § 1325(b)(1)(A) and (B) (emphasis added). The bankruptcy

court must calculate the debtor’s projected disposable income and ensure that the proposed plan

applies the entire amount to pay unsecured creditors in order to confirm the plan over an objection

by the trustee or an unsecured creditor.

The term “projected disposable income” is not defined by the Bankruptcy Code; however,

the United States Supreme Court recently concluded that a forward-looking approach should be

taken whereby “projected disposable income” is calculated based on both debtor’s circumstances as

of confirmation, and on “changes in the debtor’s income or expenses that are known or virtually

certain at the time of confirmation.” Hamilton v. Lanning, __ U.S. __, 130 S. Ct. 2464, 2478 (2010);

see also Darrohn v. Hildebrand (In re Darrohn), No. 095499, __ F.3d __, 2010 WL 2852251 (6th

Cir. July 22, 2010) (relying on Lanning and holding that the bankruptcy court violated § 1325 when

it failed to consider debtor’s changed circumstances in calculating “projected disposable income”).
11

 Because repayment of a 401(k) loan during the life of the plan can be reasonably anticipated at the

time of confirmation, the Panel concludes that post-petition income which becomes available after

401(k) loans are repaid must be considered as projected disposable income available to unsecured

creditors. 

The Panel’s conclusion that income which becomes available after 401(k) loans are repaid

is projected disposable income which must be committed to the repayment of unsecured creditors,

is also supported by two recent Court of Appeals’ decisions out of the Fifth and Eighth Circuits. See

Lasowski, 575 F.3d 815; Nowlin, 576 F.3d 258. Although these cases were decided prior to the

Supreme Court’s opinion in Hamilton v. Lanning, both courts used the forward-looking approach

to determine that funds used to repay 401(k) loans constituted projected disposable income which

must be used to pay unsecured creditors once the 401(k) loans were repaid. Because the Supreme

Court has adopted the forward-looking approach as the proper method of determining projected

disposable income for purposes of § 1325(b)(1)(B), the Panel finds the Fifth and Eighth Circuit cases

persuasive.

In Nowlin, at the time of filing, the debtor was making contributions to her 401(k) plan in the

amount of $1,062.51 and monthly 401(k) loan repayments in the amount of $1,134.79. The 401(k)

loan would be repaid after two years. Debtor’s plan proposed continuing her 401(k) contributions

and loan repayments, but did not propose increasing her chapter 13 plan payments by $1,134.79 --

the amount which would become available after she completed repayment of her 401(k) loan. The

trustee objected to debtor’s proposed plan on the grounds that the plan did not comply with the

projected disposable income requirement of 11 U.S.C. § 1325(b)(1)(B) because it did not commit

the funds which became available after the 401(k) loan was repaid to the payment of creditors.

Nowlin, 576 F.3d at 260-61.

The bankruptcy court sustained the trustee’s objection and denied confirmation of debtor’s

plan holding that the debtor’s failure to allocate ascertainable projected income to repayment of her

creditors made her plan unconfirmable under 11 U.S.C. § 1325(b)(1)(B). Both the district court and

the Fifth Circuit Court of Appeals affirmed the bankruptcy court. The Fifth Circuit concluded its

opinion by stating: 
12

The parties in this case dispute whether bankruptcy courts may consider a future

event that is reasonably certain to occur at the time of projecting the debtor’s

disposable income. For the reasons stated, we conclude that bankruptcy courts may

consider such events and adjust projections of disposable income accordingly.

Because Nowlin’s proposed plan did not include all of her “projected disposable

income” in payments to creditors following the repayment of her 401(k) loan, which

was reasonably certain to occur on or before the twenty-fourth month of her sixtymonth plan, the bankruptcy court properly denied confirmation under § 1325(b)(1).

Id. at 267.

In Lasowski, the debtor was making both a 401(k) loan payment and a regular 401(k)

contribution at the time she filed for bankruptcy. The 401(k) loan would be paid off within the first

13 months of her 60 month plan. The trustee objected to confirmation of the debtor’s plan

contending that debtor’s failure to commit the additional income resulting from the repayment of her

loans to her chapter 13 plan violated 11 U.S.C. § 1325(b)(1)(B). The bankruptcy court overruled the

trustee’s objection and confirmed the plan. Lasowski, 575 F.3d at 818. The Eighth Circuit BAP

reversed the bankruptcy court and the Eighth Circuit Court of Appeals affirmed the Eighth Circuit

BAP. The Court of Appeals stated:

The court in Nowlin thus affirmed a bankruptcy court’s denial of confirmation when

a debtor’s plan failed to take into account the reasonably certain future termination

of the debtor’s 401(k) loan repayments during the term of the debtor’s proposed plan.

Similarly here, even if Lasowski is correct that it is appropriate for her to exclude the

entire $150 she is currently repaying on her 401(k) loansfrom her disposable income

on Form 22C, the bankruptcy court could not ignore, when calculating projected

disposable income, that these payments would reduce to $100 per month after six

months and end completely after thirteen months. Only by taking into account this

fact could the bankruptcy court’s determination of projected disposable income

accurately reflect Lasowski’s ability to pay her unsecured creditors over the course

of her plan.

. . . .

Interpreting “projected disposable income” to recognize the reasonably certain future

termination of loan repayments does not require Lasowski to propose a plan that

changes the terms of her 401(k) loans. Nor does it deprive her of sufficient funds to

repay the loans, for she is free to propose a tiered plan that increases payments to

unsecured creditors after the 401(k) payments have ceased.
For e.g., the loss of employment, In re Lavin, 424 B.R. 558 (Bankr. M.D. Fla. 2010); or where a debtor has

2

a medical condition that might hasten their retirement, In re Jones, No. 07-10902, 2008 WL 4447041 (Bankr. D. Kan.

Sept. 26, 2008); or where a debtor is required to make a mandatory percentage contribution as a condition of

employment.

13

Id. at 819, 820. The Court of Appeals reversed the bankruptcy court’s confirmation of debtor’s plan

and remanded the case back to the bankruptcy court. 

Pursuant to the Supreme Court case of Hamilton v. Lanning, “projected disposable income”

is based on a debtor’s circumstances at the time of confirmation as well as on “changes in the

debtor’s income or expenses that are known or virtually certain at the time of confirmation.” 130

S. Ct. at 2478. The courts in Nowlin and Lasowski both found that termination of 401(k) loan

payments during the life of a chapter 13 plan was a “reasonably certain future” event that must be

considered in an analysis of a plan under § 1325(b)(1)(B). Lasowski, 575 F.3d at 920; Nowlin, 576

F.3d at 267. Consistent with these interpretations of “projected disposable income,” the Panel

concludes that to obtain confirmation of a chapter 13 plan, debtors are required to commit the

income which becomes available after their 401(k) loans are repaid to the payment of unsecured

creditors.

The dissent strays far from the narrow ruling of the majority opinion. The dissent repeatedly

argues that the majority opinion establishes an “irrebuttable presumption” that a debtor may never

commence or increase contributions to a tax qualified retirement plan after confirmation of their

Chapter 13 plan. The majority opinion creates no such presumption. The majority ruling only holds

that 11 U.S.C. § 1325 (b)(1)(B) precludes confirmation of a Chapter 13 plan which provides as part

of the plan, that income which becomes available after a 401(k) loan has been repaid, must be used

to commence or increase contributions to a Qualified Plan. There is nothing in the majority opinion

that would prevent a debtor from making an argument after confirmation that a change in debtor’s

circumstances justified committing income to a Qualified Plan. 2
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C. Good Faith

Finally, the Trustee contends that the Debtors have not proposed their plans in good faith

because they could pay substantially more into their plans once their 401(k) loans are repaid, but

instead are seeking solely to contribute to their 401(k) plans to the detriment of their unsecured

creditors. The bankruptcy court made no findings of fact on this issue. In light of the Panel’s

conclusion that the Debtors’ proposed plans should not have been confirmed because they cannot

commence making contributions to their 401(k) plans once the loans are repaid, the Panel need not

reach the merits of the Trustee’s appeal on the issue of good faith.

V. CONCLUSION

In conclusion, post-petition income which becomes available after a debtor repays a 401(k)

loan is not excluded from property of the estate under § 541(a) and (b), is property of the estate in

a chapter 13 case pursuant to § 1306(a), and is projected disposable income which must be

committed to the chapter 13 plan pursuant to § 1325(b)(1)(B). Once the Debtors, Seafort and

Schuler, have repaid their 401(k) loans, the funds which become available must be committed to the

plan for the repayment of unsecured creditors.

The bankruptcy court is reversed. These cases are remanded for proceedings consistent with

this opinion.
15

MARILYN SHEA-STONUM, Bankruptcy Appellate Panel Judge, dissenting. This case is

before the Panel on an appeal of the bankruptcy court’s confirmation of the Debtors’ chapter 13

plans. Confirmation of plans is governed by 11 U.S.C. § 1325. The Trustee has alleged that the

Debtors’ plans do not comply with § 1325(b)(1)(B), the “best efforts” requirement, which provides:

(b)(1) If the trustee. . . objects to the confirmation of the plan, then the court may not

approve the plan unless, as of the effective date of the plan– 

. . . .

(B) the plan provides that all of the debtor’s projected disposable income to

be received in the applicable commitment period beginning on the date that

the first payment is due under the plan will be applied to make payments to

unsecured creditors under the plan.

The basis of the Trustee’s objection is the assertion that the Debtors’ plans do not apply all of their

projected disposable income to the payment of unsecured creditors. However, in framing this

question, the Trustee masked her objection as something in addition to the best efforts analysis.

Relying on a series of statutory provisions that are not relevant to the best efforts determination, the

Trustee urged the Panel to adopt an irrebuttable presumption that chapter 13 debtors who increase

or commence contributions to retirement savings plans described in 11 U.S.C. § 541(b)(7)

(“Qualified Plans”) after their cases are filed are deemed not to be applying all projected disposable

income to pay their unsecured creditors under their chapter 13 plans. For chapter 13 debtors who

were not making contributions to Qualified Plans (“Qualified Contributions”) when they filed for

bankruptcy, this would automatically foreclose any ability to make Qualified Contributions during

the three to five year period that their chapter 13 cases will be pending. Even for debtors who had

been making Qualified Contributions prior to filing, this would cap their Qualified Contributions at

those pre-filing levels. In short, acceptance of the Trustee’s argument gives rise to an irrebuttable

presumption that the level of chapter 13 debtors’ Qualified Contributions as of the filing of their

cases is all that is necessary to the support of debtors and their dependents. There simply is no

mention of any such cap or fixed limit on Qualified Contributions in the relevant Bankruptcy Code
For other purposes, Qualified Contributions are capped by ERISA. 

1

16

provisions. Because I am convinced that the Bankruptcy Code neither requires nor lends statutory 1

support to the creation of such an irrebuttable presumption, I respectfully dissent.

The assertion in the majority opinion that their holding does not equate to the adoption of an

irrebuttable presumption does not withstand examination. The question raised in these appeals,

reduced to its most basic form, is whether the Debtors are devoting all of their projected disposable

income to fund their chapter 13 plans. The bankruptcy court processed this factual inquiry,

determined that the plans in both cases satisfied this statutory requirement, and, no other objections

remaining outstanding, confirmed the plans. The majority does not find that the bankruptcy court’s

factual determination was incorrect based upon the Debtors’ various individual circumstances.

Rather, the majority processes this factual inquiry by substituting a legal conclusion, i.e., that their

reading of the Bankruptcy Code prohibits per se chapter 13 debtors from increasing Qualified

Contributions over the life of their plans.

Resolution of this appeal should turn on the interpretation of the phrase “projected disposable

income,” which defines the “best efforts” test. The Trustee instead initially framed the issue in this

case to be about property of the estate, arguing from a variety of Code sections, including 11 U.S.C.

§§ 541(a), 1306, and 1322. These sections are not relevant to the issue now before the Panel

because, although she does her best to obscure her statutory predicate, the Trustee’s objection is

based on § 1325(b)(1)(B), which does not reference property of the estate or any of these Code

sections.

Since the Panel heard argument in this case, the Supreme Court decided Hamilton v. Lanning

(In re Lanning), ___ U.S. ___, 130 S. Ct. 2464 (2010), in which it determined that courts are to take

a “forward-looking approach,” rather than a mechanical approach, to the calculation of projected

disposable income. Id. at 2475, and the Sixth Circuit decided the direct appeal in Darrohn v.

Hildebrand (In re Darrohn), No. 09-5499, ___ F.3d ___, 2010 WL 2852251 (6th Cir. July 22, 2010),

in which it applied Lanning to both the revenue and expense factors in the projected disposable
17

income calculation. As addressed in Lanning and Darrohn, the starting point for analyzing what is

projected disposable income in any chapter 13 case is identified in 11 U.S.C. § 1325(b)(2):

(2) For purposes of this subsection, the term ‘disposable income’ means current

monthly income received by the debtor . . . . less amounts reasonably necessary

to be expended–

(A)(i) for the maintenance or support of the debtor or a dependent of the

debtor, or for a domestic support obligation, that first becomes payable after

the date the petition is filed;

. . . .

11 U.S.C. § 1325(b)(2). Because the Trustee did not raise the good faith of the Debtors in either

case, see infra, her objection rests entirely on her assertion of an irrebuttable presumption. In its

starkest terms, that presumption is that contributions to Qualified Plans are never reasonably

necessary to the debtor’s maintenance or support, except to the extent that they are ongoing at the

time of filing. However, the definition of “disposable income,” as augmented by § 541(b)(7), belies

this assumption by explicitly providing:

(b) Property of the estate does not include -

. . . . 

(7) any amount –

(A) withheld by an employer from the wages of

employees for payment as contributions

(i) to —

[three different forms of retirement savings plans that

qualify for tax deferment under the Internal Revenue

Code of 1986]

except that such amount under this subparagraph shall

not constitute disposable income as defined in section

1325(b)(2)[.]

11 U.S.C. § 541(b) (emphasis added). Central to the resolution of this appeal is determining the

meaning of the final phrase that begins with “except” and will be referred to as the “hanging phrase.”

Section 541(b)(7) is one of a number of BAPCPA amendments addressing debtors’ Qualified

Contributions and debtors’ participation in Qualified Plans. One thrust of these provisions was to
See, e.g., Nowlin v. Peake (In re Nowlin), 576 F.3d 258 (5th Cir. 2009) (see infra); In re Lavin, 424 B.R. 558 2

(Bankr. M.D. Fla. 2010) (seeking relief under chapter 7 did not constitute abuse where debtor obtained employment postpetition and thereafter began making 401(k) contributions, because such amounts would not be disposable income

available to creditors in a chapter 13); In re Gibson, No. 09-01196, 2009 WL 2868445, at *2 (Bankr. D. Idaho Aug. 31,

2009) (“Even if Debtors had not decided to begin making contributions to their 401(k) plan until after they filed their

bankruptcy petition, the contributions would still not be classified as disposable income.”); In re Jones, No. 07-10902,

2008 WL 4447041 (Bankr. D. Kan. Sept. 26, 2008) (refusing to find lack of good faith based on post-petition

commencement of 401(k) contributions alone, where retirement plan changed post-petition so that employer would no

longer contribute unless debtor also contributed); Mati, 390 B.R. 11, 17 (analyzing debtor’s proposed plan, which

provided for increased 401(k) contributions, under the § 1325(a)(3) good faith requirement and concluding that the

“Debtor is merely taking advantage of what the law allows.”); In re Shelton, 370 B.R. 861 (Bankr. N.D. Ga. 2007)

(holding that date that debtor began contributions would be relevant to good faith, not to disposable income); Baxter v.

Johnson (In re Johnson), 346 B.R. 256, 263 (Bankr. S.D. Ga. 2006) (debtors who increased their 401(k) contributions

“may fund 401(k) plans in good faith, so long as their contributions do not exceed the limits legally permitted by their

401(k) plans.”); but see In re Prigge, No. 09-61545, 2010 WL 81728, at *9 n.5 (Bankr. D. Mont. Mar. 4, 2010) (finding

that debtors may not make 401(k) contributions during the life of a chapter 13 plan, regardless of when contributions

commenced).

In limiting its inquiry to 401(k) contributions, the majority ignores the potentially far-reaching consequences

3

of its holding if applied to all Qualified Contributions. During oral argument, Trustee’s counsel was adamant that there

could be no increase in Qualified Contributions. The holding of the majority would be applicable to all forms of

18

legislatively overrule decisions that had construed the Bankruptcy Code as prohibiting both unaltered

repayment of loans from debtors’ retirement plans and participation in such plans by debtors during

the chapter 13 plan period. See, e.g., Behlke v. Eisen (In re Behlke), 358 F.3d 429 (6th Cir. 2004);

Anes v. Dehart (In re Anes), 195 F.3d 177 (3d Cir. 1999); Harshbarger v. Pees (In re Harshbarger),

66 F.3d 775 (6th Cir. 1995); In re Heffernan, 242 B.R. 812, 818 (Bankr. D. Conn. 1999). By

“expressly removing [401(k) contributions] from the definition of disposable income under

§ 1325(b), . . . Congress has implemented a policy of protecting and encouraging retirement

savings.” In re Mati, 390 B.R. 11, 17 (Bankr. D. Mass. 2008). As courts outside the Sixth Circuit

repeatedly have observed, chapter 13 debtors may increase or begin Qualified Contributions during 2

the course of their chapter 13 plans.

Indeed, from the time BAPCPA was enacted five years ago until the majority’s opinion in

these two appeals, no court had adopted the interpretation advocated by the Trustee. The Trustee’s

interpretation strays far from the applicable Code provisions and reaches a harsh and uneven result.

Adoption of that interpretation by the majority ignores the proof that these amendments provide of

Congress’ determination that retirement savings generally are reasonably necessary for consumer

debtors. As discussed infra, the majority’s assertion that the Fifth and Eighth Circuits have 3
Qualified Plans identified in § 541(b)(7). Such a strict application of the irrebuttable presumption that abrogates the

bankruptcy court’s inquiry into reasonably necessary expenses would prohibit increases in contribution that are a

condition of debtors’ employment, which would occur if a debtor received a raise in a position that required mandatory

percentage contribution, thereby increasing the actual dollar amount of the debtor’s contributions. Such a result would

actually be more restrictive of chapter 13 debtors’ ability to participate in Qualified Plans than some pre-BAPCPA case

law. See, e.g., New York City Employees Ret. Sys. v. Sapir (In re Taylor), 243 F.3d 124 (2d Cir. 2001) (providing that

whether contributions are mandatory should be a factor in the bankruptcy court’s assessment of whether they are

reasonably necessary); In re Davis, 241 B.R. 704, 707 (Bankr. D. Mont. 1999) (“[E]xpenses over which the debtor has

no control, or which are necessary to the debtor’s employment, are undoubtedly ‘reasonably necessary.’”) (quoting

8 Collier on Bankruptcy, § 1325.08[4][b][i])). Such a result is certainly at odds with Congress’ intent to overrule preBAPCPA case law, which it viewed as overly restrictive of debtors’ ability to participate in Qualified Plans.

19

interpreted § 1325(b)(1) to prohibit an upward change in Qualified Contributions from the filing date

level is simply inaccurate. 

The proper analysis ofthis issue is straightforward. Disposable income does not include any

amount withheld as a Qualified Contribution. This exception from disposable income is found in

the hanging phrase, which, by its reference to § 1325(b)(2), is necessarily forward-looking and makes

no distinction between pre-filing and post-filing Qualified Contributions. To make sense of the

hanging phrase, it is important to keep in focus that the issue on appeal is satisfaction of the best

efforts requirement. In contrast, the Trustee’s argument depends on property of the estate. In

confirmation of chapter 13 plans, property of the estate is material to the best interests test, not the

best efforts test; the Trustee did not argue in either case that the best interests requirement was not

met, i.e., that the Debtors’ plans do not propose payments in an amount at least equal to the nonexempt property that would be available to satisfy claims were the case to proceed in chapter 7. The

hanging phrase explicitly provides that the Debtors’ Qualified Contributions are not disposable

income; its reference to § 1325(b)(2) is appropriately read as forward-looking. It contains no

requirement that Qualified Contributions had to have been withheld before the case commenced and

does not indicate that they are capped as of the date of filing. Because the Trustee failed to show that

the plans do not provide that all of the Debtors’ projected disposable income will be paid into their

plans, the bankruptcy court did not err when it confirmed the Debtors’ plans over the Trustee’s

contention that the best efforts test had not been satisfied.

The majority begins its analysis with § 541(a) rather than § 1325(b), even though the

Trustee’s objection is that the Debtors’ plans do not satisfy the best efforts requirement. The
Section 1306(a)(1) includes “all property . . . the debtor acquires after the commencement of the case, but 4

before the case is closed, dismissed, or converted to a case under chapter 7, 11 or 12 . . . .”. The debtor’s post-petition

wages are included in property of the estate by § 1306(a)(2). Qualified Contributions are taken from the debtor’s wages

and are therefore property of the estate under § 1306(a)(2). However, as discussed above, what constitutes “property

of the estate” is not relevant to § 1325(b)(1)(B), the Code section controlling confirmation. As § 1306(b) provides, the

debtor remains in possession of all property of the estate, except as otherwise provided in the plan. The plan, in turn,

must provide for the distribution of all projected disposable income to creditors. There is no requirement that all

property of the estate must be made available to creditors in a chapter 13 case. The definition of the estate remains

important in a chapter 13 case. For example, the estate continues to define part of the scope of the automatic stay. 11

U.S.C. § 362(a)(3). However, it is not relevant to the debtor’s projected disposable income, which is the inquiry of

§ 1325(b)(1)(B).

When Congress established two categories of consumer debtors based upon whether their income is determined 5

to be above or below median income, it clearly articulated the two classifications and further eschewed the establishment

of any irrebuttable presumptions, instead allowing for consideration of numerous individual facts and circumstances.

11 U.S.C. § 707(b)(3). Certainly in providing for those two classifications, Congress was dealing with a rational

distinction between consumer debtors of differing income levels. In contrast, under the majority’s acceptance of the

Trustee’s argument, debtors would be classified, at best, by random circumstances and at worst, as an inverse measure

of their need to begin retirement savings. To put it mildly, this irrebuttable presumption raises due process questions

20

majority’s analysis first addresses the question of whether post-petition Qualified Contributions are

property of the estate without explaining what relevance this question has to confirmation of a

chapter 13 plan, stating “the bankruptcy court concluded that . . . contributions which commence

after the filing of the case must also be excluded from property of the estate.” However, this

statement is in error; the bankruptcy court had no need to address or resolve the question of whether

such contributions are property of the estate. Rather, the bankruptcy court addressed only how such

Qualified Contributions should be treated in determining what is projected disposable income, which

is the only question on appeal. Continuing with a discussion of property of the estate, the majority

then considers § 1306, which defines property of the estate in a chapter 13 case. Noting the fact that

Congress did not reference Qualified Contributions in § 1306, the majority concludes that Congress

did not intend for Qualified Contributions “to be excluded from property of the estate or from

projected disposable income.” The first prong of that statement is correct. The second prong

assumes a conclusion that goes beyond the operation of § 1306. Section 1306 does not discuss,

define, or address either projected disposable income or disposable income in any way. Relying on

§ 1306 as any indication of congressional intent on the question of disposable income is a non

sequitur. Further, if Congress had intended to create the Trustee’s irrebuttable presumption, that 4

presumption would logically have been included in § 1325(b) or, at a minimum, in § 541(b)(7).5
which the majority simply ignores. See Vlandis v. Kline, 412 U.S. 441, 447, 93 S. Ct. 2230, 2234 (1973) (“Statutes

creating permanent irrebuttable presumptions have long been disfavored under the Due Process Clauses of the Fifth and

Fourteenth Amendments.”).

In Darrohn, the Sixth Circuit took note of the information that consumer debtors are directed to provide on

Form B22C. That form was developed by the Administrative Office of the United States Trustee program in order to

implement the Means Test. Part VI of that form directs debtors to “[l]ist and describe any monthly expenses, not

otherwise stated in this form, that are required for the health and welfare of you and your family and that you contend

should be an additional deduction from your current monthly income under § 707(b)(2)(A)(ii)(I).” Part VI thus provides

debtors with the opportunity to describe, inter alia, circumstances that justify maximizing their Qualified Contributions

beyond amounts reported in item 31 of Form B22C. As the Sixth Circuit observed in Darrohn, “[w]hile much of the

[Supreme] Court’s analysis in Lanning focused on the income side of the projected disposable income formulation, the

holding clearly applied to ‘changes in the debtor’s income or expenses . . . .’” Darrohn, 2010 WL 2852251, at *5

(emphasis added in the Sixth Circuit opinion) (citation omitted). Neither Lanning nor Darrohn support adoption of the

Trustee’s irrebuttable presumption with respect to a particular category of expense. And I note again the presumption

is not articulated in the Bankruptcy Code.

21

The majority also reasons that if Congress had intended to exclude Qualified Contributions from

projected disposable income, it could have easily tacked the words “or projected disposable income

under § 1325(b)(1)(B)” to the end of the hanging phrase in § 541(b)(7). This suggestion ignores the

fact that projected disposable income is not defined in § 1325(b)(1). Rather, the term “disposable

income” has been specified not to include Qualified Contributions and with regard to the statutory

phrase, projected disposable income, the word “projected” is to be given its ordinary meaning.

Lanning, 130 S. Ct. at 2471 (“When terms used in a statute are undefined, we give them their

ordinary meaning.”). Indeed, the majority’s suggestion that Congress should have tacked their

phrase onto § 541(b)(7) brings into clearer focus their erroneous assumption that “projected

disposable income” has some meaning different than a projection of “disposable income” through

application of § 1325(b). Application of § 1325(b) calls for a case-specific analysis of what is

needed for the support of the debtor and the debtor’s dependents.

The majority then reaches the question of disposable income and cites two purportedly

supporting cases. However, neither of these cases support the majority’s holding. Although many

cases (see supra note 2) have similar facts to the cases in this appeal, there are no cases that have

reached the conclusion that a debtor may make Qualified Contributions during the course of a

chapter 13 bankruptcy only to the extent that such contributions were ongoing at the time the petition

was filed.
22

In Nowlin v. Peake (In re Nowlin), the debtor was contributing to her 401(k) plan and

repaying a 401(k) loan at the time of filing. 576 F.3d 258 (5th Cir. 2009) (cited in Lanning, 130 S.

Ct. at 2474, 2475. However, the Fifth Circuit did not disturb the bankruptcy court’s holding that

“after Nowlin had paid off her 401(k) loan, she could contribute an additional $187.49 to her 401(k)

plan, which would bring her monthly 401(k) contributions to the maximum of $1,250.00 per month.”

Nowlin, 576 F.3d at 261 (emphasis added). Rather, the Fifth Circuit agreed with the district and

bankruptcy courts’ conclusion that the additional amounts that would be available to the debtor after

repaying her 401(k) loan, beyond what was used to maximize her 401(k) contributions, should be

included in projected disposable income that must be distributed to unsecured creditors. Nowlin is

inconsistent with the majority’s position. In Nowlin, the debtor was permitted to increase her

Qualified Contribution to the maximum allowable under her employer’s plan. It was only amounts

in excess of that payment that were considered projected disposable income and required to become

part of the chapter 13 payment after the 401(k) loan was repaid. Id.

Similarly, in McCarty v. Lasowski (In re Lasowski), the debtor was making payments on a

401(k) loan that would be fully repaid during the chapter 13 plan. 575 F.3d 815, 817-18 (8th Cir.

2009). In that case, the record is silent as to whether or not the debtor proposed to maintain,

commence, or increase her Qualified Contributions to a Qualified Plan during the course of her

bankruptcy. Id. The Eighth Circuit reached only the question of whether the “calculation of a

debtor’s projected disposable income can take into account changes in the debtor’s financial

circumstances that are reasonably certain to occur during the term of the debtor’s proposed plan.”

Id. at 819. That question was resolved by the Supreme Court’s holding in Lanning and is not at issue

in this case. Lasowski does not support the majority’s irrebuttable presumption that a debtor may

not use income available after repayment of a 401(k) loan to commence or increase Qualified

Contributions. 

The Supreme Court held in Lanning that “the court may account for changes in the debtor’s

income or expenses that are known or virtually certain at the time of confirmation.” 130 S. Ct. at

2478 (emphasis added). Application of Lanning does call for consideration of how to deploy the

portion of the debtors’ wages once the 401(k) loans have been repaid. The trial court determined,
23

implicitly at least, that the Debtors’ proposed Qualified Contributions are necessary to the support

of Debtors or their dependants. The bankruptcy court therefore correctly took into account

fluctuations in the Debtors’ disposable income resulting from the completion of the 401(k) loan

repayments and the changes to the Debtors’ Qualified Contributions. The majority does not defer

to the trial court’sfactual determination, not only in these two cases, but would substitute its across

the board determination in all future cases.

Legislative History

The language now the source of dispute in these cases was added to the Bankruptcy Code as

part of BAPCPA. The majority emphasizes Congress’ intention to ensure “debtors repay creditors

the maximum they can afford,” (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 holding, claiming its decision mirrors the clear

legislative intent of BAPCPA. It is an unfortunate fact that there exists virtually no real legislative

history for the detailed provisions of BAPCPA. See Susan Jensen, A Legislative History of the

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr. L.J. 485 (2005).

Because the plain meaning of the statute unambiguously provides that Qualified

Contributions are excluded from disposable income, as discussed above, there is no need to consider

legislative history, were any such history available for the provisions under consideration. Hartford

Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S. Ct. 1942, 1947 (2000)

(“[W]hen the statute’s language is plain, the sole function of the courts – at least where the

disposition required by the text is not absurd – is to enforce it according to its terms.”) (internal

quotation marks omitted). Moreover, the legislative history does not evince congressional intent on

this specific issue. The language of the statute shows that Congress appears to have balanced the

competing policy priorities of (1) ensuring that unsecured creditors receive the most debtors can

afford to pay and (2) promoting participation in Qualified Plans. As BAPCPA determined how that

was to be done, i.e., by allowing chapter 13 debtors to exclude Qualified Contributions from
The majority opinion states:

6

In regard to retirement savings, Congress clearly intended to strike a balance

between protecting debtors’ ability to save for their retirement, and requiring that

debtors pay their creditors the maximum amount they can afford to pay. This

balance is best achieved by permitting debtors who are making contributions to a

401(k) plan at the time their case is filed, to continue making contributions, while

requiring debtors who are not making contributions at the time a case is filed to

commit post-petition income which becomes available, to the repayment of

creditors rather than their own retirement plan.

See supra (emphasis added).

24

disposable income, it is not appropriate for the majority to determine that Congress has not struck

the right balance between competing policies. As succinctly stated elsewhere:

6

Congressional intent on this point is sufficiently plain and is a matter of policy; as

such, it does not lead to an absurd result. The goal to expand retirement savings is

clear and the result is reasonable. Accordingly, amounts withheld from wages for

contribution to a qualified retirement plan are not included in § 1325(b)(1)’s

calculation of projected disposable income.

In re Shelton, 370 B.R. at 866.

The majority concludes that to allow debtors to start or to increase Qualified Contributions

after repaying a 401(k) loan, but while still in the chapter 13 case, would tip “the delicate balance

struck by BAPCPA impermissibly in favor of debtors.” This assertion suggests that chapter 13

debtors would use the exclusion created by § 541(b)(7) to begin or increase Qualified Contributions

in order to abuse the bankruptcy process and avoid paying their unsecured creditors. It also assumes

that this abuse can be fairly prevented by the irrebuttable presumption the majority now adopts.

However, in light of the clear statutory language, the balancing of competing policy interests is not

appropriately done by the courts. See SEC v. U.S. Realty & Improvement Co., 310 U.S. 434, 468,

60 S. Ct. 1044, 1059 (1940) (“[The bankruptcy court’s] function is to make an equitable distribution

of the estate among the creditors, but the principle has not been applied in the sense that the court

may, in its better judgment, refuse to award the relief which Congress has accorded the [debtor].”);

Gonzalez-Ruiz v. Doral Fin. Corp. (In re Gonzalez-Ruiz), 341 B.R. 371, 383 n.15 (B.A.P. 1st Cir.
25

2006) (“[A] court may not alter rights that a debtor has been granted by Congress . . . by determining

that those rights are unfair or inequitable based on the court’s distaste for Congress’ choices.”).

Abuse of the bankruptcy process is prohibited by other provisions of the Bankruptcy Code

and would not be abetted by any ruling this Panel makes in these cases. See 11 U.S.C. § 1307; 11

U.S.C. § 1325(a)(3), (a)(7); Alt v. United States (In re Alt), 305 F.3d 413, 419 (6th Cir. 2002) (“The

key inquiry [in a motion to dismiss a chapter 13 case] is whether the debtor is seeking to abuse the

bankruptcy process.”). Predictably, most of the cases considering a debtor’s proposed

commencement or increase of Qualified Contributions have focused on whether the facts of the

particular case showed a lack of good faith. See supra note 2. There is no reason to think that abuse

of the bankruptcy system is now unchecked because BAPCPA statutorily overruled earlier case law

that applied blanket prohibitions. What BAPCPA did not change was the good faith requirement.

The majority’s reasoning does not explain why a court should refuse to confirm a plan that a debtor

has proposed in good faith if it provides for the debtor’s best efforts to repayment of creditors, meets

the “best interests of creditors” test of § 1325(a)(4), and is otherwise in compliance with the

requirements of the Bankruptcy Code, simply because it involves an increase in the debtor’s

Qualified Contributions. 

As other cases illustrate, debtors frequently have unusual circumstances either before or after

their bankruptcy cases begin. The totality of the circumstances approach to the good faith inquiry

is a more effective way of balancing two congressional purposes – to prevent abuse and to encourage

retirement savings – than is the Trustee’s irrebuttable presumption that the majority now adopts. 

In re Lavin, for example, involved a debtor who had at one time made large Qualified

Contributions, but reduced them as his debts rose and he struggled to pay creditors. He eventually

stopped making the contributions and, after losing his job, filed for bankruptcy. He was able to find

employment post-petition and began making very large contributions (19% of his salary) because

he suffered from a medical condition that would force him to retire early due to disability. Lavin,

424 B.R. 558, 561-62. Under the majority’s holding, this debtor would not be able to make any

Qualified Contributions during the life of his plan because he was unemployed at the moment of his

bankruptcy filing and consequently not contributing to a Qualified Plan. The bankruptcy court
26

would have no discretion to make an exception to this rule that the Trustee and the majority have

conjured. Indeed, all debtors whose bankruptcy filings had been precipitated by an ongoing job loss

would be absolutely prohibited from making Qualified Contributions from their post-petition

employment wages, even if they had been making those contributions, or had not been eligible to

make contributions, at their prior employment. 

Similarly, in In re Jones, the debtors started making Qualified Contributions to the wife’s

Qualified Plan after filing. The court found there was no absence of good faith based on the

circumstances:

Both Debtors are fast approaching retirement age, and also have medical conditions

that might hasten their retirements. After Debtors filed for bankruptcy, the Wife’s

employer changed its retirement plan from one where it made contributions even if

the Wife did not to one where it would match the Wife’s contributions but otherwise

make none.

Jones, No. 07-10902, 2008 WL 4447041, at *5 (Bankr. D. Kan. Sept. 26, 2008). Under the

majority’s interpretation, these debtors’ plans could not be confirmed. These cases do not evidence

the abuse that Congress sought to eradicate with BAPCPA. See also In re Gibson, No. 09-01196,

2009 WL 2868445, at *3 (Bankr. D. Idaho Aug. 31, 2009) (comparing factual circumstances relevant

to debtors’ good faith in various cases involving post-petition increase or commencement of

Qualified Contributions). 

The suggestion that “[t]here is nothing in the majority opinion that would prevent a debtor

from making an argument after confirmation that a change in debtor’s circumstances justified

committing income to a Qualified Plan” ignores several obvious points. See supra. First, that is

precisely the type of factual inquiry that is appropriately addressed in the confirmation process

pursuant to § 1325(b)(2)(A)(i), but the majority’s adoption of the Trustee’s reading that §§ 541(a)(1)

and 1306 conclusively inform the amount of Qualified Contributions that debtors may allot in

constructing chapter 13 plans inappropriately stops that inquiry at the starting block. The majority

does not articulate why their method of calculating projected disposable income in the context of a

post-confirmation motion to amend a chapter 13 plan would not be met with precisely the same
27

brick-wall response. Indeed, given our recent holding in In re Storey, 392 B.R. 266 (B.A.P. 6th Cir.

2008), which addressed the limits of relief appropriately granted pursuant to 11 U.S.C. § 1329, such

a course of action would be ineffective with respect to evidence that could have been presented in

the confirmation process. 

The majority’s rule, while preventing confirmation of good-faith debtors’ plans, would not

be an effective method of eradicating abuse. High-income debtors who had made large Qualified

Contributions as their debts mounted would be able to continue such payments during their

bankruptcy regardless of whether they had any compelling reason to make large contributions. On

the other hand, debtors who had reduced or stopped their Qualified Contributions in an attempt to

pay creditors and avoid bankruptcy, like the debtor in Lavin, would be prohibited from contributing

– truly a part of the “fresh start” for older debtors nearing retirement – until after they had completed

their plans. See, e.g., In re Devilliers, 358 B.R. 849, 865 (Bankr. E.D. La. 2007) (“Congress has

determined that contributions to a qualified retirement account are, by their very nature, reasonable

and necessary. Byproviding for a debtor's eventual retirement, retirement contributions become part

of debtor's fresh start.”). The majority’s ruling also offers no accommodation to debtors for whom

changed circumstances make new or increased post-petition Qualified Contributions reasonable and

necessary.

The majority’s fear of growing gamesmanship presumes that courts, trustees, and creditors

are unable to recognize unfair manipulation of the bankruptcy system. It replaces the bankruptcy

courts’ discretion and judgment with an irrebuttable presumption that is not articulated in the

Bankruptcy Code. Furthermore, it unfairly discriminates against low-income debtors in favor of

high-income debtors. High-income debtors are more likely to have made Qualified Contributions

prior to filing their bankruptcy petitions and more likely to have the ability to engage in pre-petition

planning, such as by beginning their Qualified Contributions in anticipation of the filing. Lowincome debtors, by comparison, are less likely to have made Qualified Contributions pre-petition and

will probably be the most frequently disadvantaged were the majority’s holding in this case to
See, e.g., Regina T. Jefferson, Redistribution in the Retirement System: Who Wins and Who Loses?, 52 How.

7

L.J. 283, 299 (2010) (“Participation rates among low-income workers in the private retirement system is relatively low,

and continues to decline.”). See also Hatty Yip, Double Whammy: How the New Credit Card Nondischargeability

Provision and the New Means Test Hit Single Mothers Over the Head, 15 Buff. Women’s L.J. 33 (2006) (“To the extent

that lower income debtors . . . [proceed without counsel] they will get caught more than debtors who have the means to

consult attorneys. Most of the ‘traps’ are manageable for debtors who obtain competent legal advice pre-petition. Low

income debtors get caught because no one warned them to either wait to file or not to do certain things before they file.”

(quoting Bankruptcy Judge Maureen Tighe)).

28

become binding. The majority’s holding also does not prevent a debtor from dramatically 7

increasing Qualified Contributions pre-petition so as to meet the requirement that contributions be

in place before the petition is filed. Of course, such debtors may fail to show the good faith required

by the Bankruptcy Code. However, the good faith requirement is also well-suited to avert abuse

commenced after the petition date. See, e.g., Soc’y. Nat’l. Bank v. Barrett (In re Barrett), 964 F.2d

588, 592 (6th Cir. 1992) (holding that a bankruptcy court should consider many pre- and postpetition factors in making a good faith determination). 

In fact, the good faith analysisthat courts already apply to confirmation of plans would apply

well to situations like those presented here. Though Qualified Contributions are not part of

disposable income, they are still relevant to good faith:

While it is apparent that Congress removed certain streams of income from being

considered disposable income, it does not necessarily follow that Congress intended

to handicap the courts’ good faith inquiries or unintentionally create a proverbial

“loophole” . . . . BAPCPA expressly limited the application of § 541(b)(7) to one

particular paragraph, § 1325(b)(2) . . . . Had Congress sought to soften the good faith

requirement, a statement to that effect is conspicuously absent.

Shelton, 370 B.R. at 867; see also Jones, 2008 WL 4447041, at *4 (weighing debtors’ post-petition

commencement of retirement savings as a factorin analysis of good faith); but see Johnson, 346 B.R.

at 263 (“Debtors are not required to contribute [retirement savings contributions] to their Chapter

13 plans. Consequently, in determining good faith under § 1325(a)(3), I may not consider them.”).

Courts should consider the totality of the circumstances to determine debtors’ good faith. See

Barrett, 964 F.2d at 591 (citing “totality of the circumstances” test for good faith inquiry in a chapter

13 case). A debtor’s proposal to increase or to begin Qualified Contributions post-petition is one
29

of many circumstances that may be considered by a court assessing the debtor’s good faith. See, e.g.,

Shelton, 370 B.R. 861 (holding that plan proposing large payments to secured creditors and large

contributions to retirement savings, but 0% payout to unsecured creditors, invites scrutiny of the

debtor’s good faith); Gibson, 2009 WL 2868445, at *3 n.5 (suggesting a situation in which a debtor

proposes to commence, rather than increase, retirement contributions post-petition may merit

heightened scrutiny). However, the court might be equally suspicious of a high-income debtor who

seeks to maintain excessive Qualified Contributions throughout the bankruptcy process, although

such a debtor would not be affected by the majority’s holding in this case. In either situation, upon

an objection, the court would have to determine how much weight to give this factor and could

consider the needs of individual debtor’s with respect to retirement savings, such as those noted in

the cases cited in note 2, supra. Among the circumstances that bankruptcy courts have considered

are: 

1. Debtors’ proximity to retirement, by virtue of age or medical condition;

2. Debtors’ prior retirement savings and whether amounts already saved could be sufficient to

support the debtors after retirement;

3. The likely cost of living during debtors’ retirement, considering medical conditions and other

relevant concerns;

4. Whether debtors made contributions previously and decreased them due to job loss, reduced

income, or attempts to pay creditors;

5. Whether debtors are contributing amounts in excess of what their employers will match, if

an employer offers matching contributions, e.g., whether requiring debtors to forego some

oftheir contributions would essentially force them to forego an employer-sponsored benefit;

6. Whether debtors have recently experienced a change in circumstances relevant to their

retirement savings (new options from employer, new employer plan, new employer, sudden

decrease in value of retirement savings, etc.); and

7. The relative percentages of debtors’ income being contributed to retirement savings and

payments to creditors. 

However, it does not appear that the issue of good faith is properly before the Panel in these cases.
30

Good Faith

The Trustee asserts that the Debtors have not proposed their plans in good faith, but this

argument was raised for the first time on appeal. Generally, issues raised for the first time on appeal

are not properly determined by the appellate court. Lockhart v. Napolitano, 573 F.3d 251, 261 (6th

Cir. 2009). The Trustee claims that the following language, in the objections to confirmation, makes

clear reference to Debtors’ good faith:

In essence, the debtors are proposing that unsecured creditors chip in some $9,790.00

for Mr. Schuler’s retirement. The plan must be amended to show that plan payments

will increase by the full amount of the [401(k)] loan payment in the month after the

loan is paid off.

Schedule I reflects a deduction for a 401K/retirement loan payment. The loan will

be paid in full in June 2010. The plan must be amended to show that plan payments

will increase by $255 per month starting in July 2010.

These statements most directly reference the calculation of disposable income and do not mention

good faith. This issue was therefore not preserved in these appeals.

Appellate courts may consider arguments first presented on appeal in “exceptional cases or

particular circumstances, or when the rule [against doing so] would produce a plain miscarriage of

justice.” Foster v. Barilow, 6 F.3d 405, 407 (6th Cir. 1993) (cited in McFarland v. Henderson, 307

F.3d 402, 407 (6th Cir. 2002)). The most common instance is when the issue is purely one of law

that is presented to the appellate court with sufficient clarity and completeness that it may be

resolved on appeal. Foster, 6 F.3d at 407 (noting that the exception to the rule that appellate courts

will not consider issues first presented on appeal “is most commonly applied where the issue is one

of law, and further development of the record is unnecessary”). The issue of good faith, in contrast,

is a fact-specific inquiry not appropriately addressed for the first time on appeal, especially where

the bankruptcy court record shows no discovery and the court made no factual findings on the issue.

See Hardin v. Caldwell (In re Caldwell), 851 F.2d 852, 858 (6th Cir. 1988) (identifying good faith

as a factual finding reviewed for clear error). The Trustee argues that all the facts necessary to

determine that the Debtors lack good faith are properly before the Panel based on the bankruptcy
31

court’s record. Because the determination of a debtor’s good faith is a factual determination based

on the totality of the circumstances, this is simply not the case. “[N]o one factor should be viewed

as being a dispositive indication of the debtor’s good faith. . . . [T]he ‘totality of the circumstances’

means what it says: It exacts an examination of all the facts in order to determine the bona fides of

the debtor.” Id. at 860 (citation omitted). Such an examination not having been sought from the

bankruptcy court, the Panel may not now consider the Trustee’s argument regarding the Debtors’

good faith.

For these reasons, I would affirm the ruling of the bankruptcy court.