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Post Petition Pre Confirmation Increase in Debt
You may need to file a motion to seek approval of the 401K loan if the debt was over the maximum allowed by the plan. Check you plan provisions.
Catherine Christiansen
________________________________
To: cdcbaa@yahoogroups.com
Sent: Thursday, August 9, 2012 2:50 PM
Subject: [cdcbaa] Post Petition Pre Confirmation Increase in Debt
Listmates-
I have a chapter 13 case that has been filed and after filing Debtor totaled her vehicle which had a secure lien. The secured lien allowed client to have lower disposable income in form 22c because of the operating expenses and secured payment deduction. Now client has replaced the same car loan payment with a 401k loan payment (both for the same dollar amount) which she took out post filing and the trustee is not counting the 401k payment against her disposable income.
I've found case law in other districts that state a 401k payment shall not be considered disposable income, which would hopefully keep the plan payment the same or close. However, trustee is contending that there is NO case law / statute on point that would allow a debt payment incurred POST petition to be excluded from disposable income. I've had no luck finding anything to the contrary.
Suggestions please.
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Well the BAP was tacitly saying that the Form is wrong. Same thing
happened with the Wiegand decision. However, Nick is absolutely
correct that the BAP opinion is not binding and we can still
continue inserting figures on Line 55, but I would expect the
Trustees to start objecting, so get ready for battles and we all
need to consider not using the RARAs anymore and doing regular fee
apps so we can get paid for all the additional work.
*************************
Mark J. Markus
Law Office of Mark J. Markus
11684 Ventura Blvd. PMB #403
Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
web: http://www.bklaw.com/
Certified Bankruptcy Law Specialist--The State Bar of California
Board of Legal Specialization
This Firm is a Qualified Federal Debt Relief Agency (see what this
means at
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Dear Jamie,
I assume you are aware of 11 U.S.C. 1322(f), which provides: "A plan may not materially alter the terms of a loan described in section 362(b)(19) and any amounts required to repay such loan shall not constitute 'disposable income' under section 1325[,]" and 362(b)(19), which deals, inter alia, with 401(k) loan repayments. The wording of 1322(f) seems to imply that the envisioned loan must antedate the plan. Therefore, if the plan has already been confirmed, this subsection may not help you.
However, if the plan has not yet been confirmed, you might try amending the plan pursuant to 1323(a), and then arguing using 1323(b) that since the loan now antedates the plan, 1322(f) should apply. Note that 1322(f) does not require that the loan be prepetition, just that it antedate the plan.
If the plan has already been confirmed you may wish to file a motion to modify the plan due to changed circumstances, and ask that the plan payments be reduced by the amount necessary to repay the loan. The trustee may object and assert that the debtor should have filed a motion to incur new debt before buying the car, but you can counter that the need for a car was an emergency and the debtor didn't have time to get such a motion granted. Moreover, you might point out that if the debtor doesn't repay the loan, she will have an income tax liability - and a 10% penalty for the early 401(k) distribution - that will necessitate an eventual plan modification anyway, so modification is warranted. Depending on your judge, you may get the motion granted.
The trustee may have in mind the unfortunate holding in the very recent BAP case, In re Parks, that Mark Markus posted a couple of days ago. However, that case is distinguishable from your case because Parks dealt with 401(k) contributions rather than 401(k) loan repayments. By the way, I found the BAP's interpretation of 541(b)(7)(A) less than compelling, and wonder if there was something more involved with the debtors' case than came out in the opinion. Perhaps it was one of those "bad facts make bad law" holdings. And since a BAP decision is not binding on bankruptcy judges - other than the judge from whom the appeal was taken - I still plan to put 401(k) contributions on line 55 of Form 22C and see what happens. Otherwise, line 55 becomes meaningless. Apparently, the forms committee felt that 541(b)(7)(A) had meaning and therefore included line 55 in the form. I know that the form is not binding law, but the committee's reasoning might be worth investigating.
Good luck,
Nick
Nicholas Gebelt, Ph.D., J.D.
Certified Bankruptcy Specialist
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The post was migrated from Yahoo.
Listmates-
I have a chapter 13 case that has been filed and after filing Debtor totaled her vehicle which had a secure lien. The secured lien allowed client to have lower disposable income in form 22c because of the operating expenses and secured payment deduction. Now client has replaced the same car loan payment with a 401k loan payment (both for the same dollar amount) which she took out post filing and the trustee is not counting the 401k payment against her disposable income.
I've found case law in other districts that state a 401k payment shall not be considered disposable income, which would hopefully keep the plan payment the same or close. However, trustee is contending that there is NO case law / statute on point that would allow a debt payment incurred POST petition to be excluded from disposable income. I've had no luck finding anything to the contrary.
Suggestions please.
The post was migrated from Yahoo.