401k loans, the Means Test, and the Ability to Remain Employed and Cease Payments
Posted: Fri Mar 04, 2016 1:01 pm
See in re Vanlandingham (Kansas bk)
Sent from my iPhone - please excuse typos.
Thank you.
> On Feb 25, 2016, at 9:30 PM, MCPC - EMC echeney@mcpclawfirm.com [cdcbaa] wrote:
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> Andrew Mansfield and I have been working on an adversary case against the County of Ventura and would appreciate any suggestions, comments, or critiques. We have set up a web page with a short description of the collision between an employer decision and Ninth Circuit law. Key documents are linked there. You can provide comments right on the website.
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> http://www.mcpclawfirm.com/401k-loans-and-bankruptcy
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> Here are the issues.
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> Debtors filing for Chapter 7 relief in the Ninth Circuit are prohibited from deducting 401(k) loan repayments on the Chapter 7 means test. In the case of a debtor we are representing, his 401(k) loan payments are 22% of his gross income. In re Egebjerg disallowed 401(k) loan payment deductions on the means test because the Ninth Circuit held that debtors can remain employed and cancel 401(k) loan repayments.
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> Despite this holding, Mr. Henry is being denied the right to end the withholding of loan repayments from his paychecks because the County of Ventura claims it is against Federal law for them to do so. Mr. Henry and other debtors are at the losing end of both sides of this argument.
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> 1. According to the Ninth Circuit, debtors may not deduct 401(k) loan payments because repayment is not a mandatory condition of employment. Debtors allegedly have the right to terminate loan repayments, take the tax hit, and remain employed.
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> 2. Despite this limitation, debtors may be prevented by their employer from ending 401(k) loan repayment. Instead, a debtor may be told Federal law prohibits the very option relied upon by the Ninth Circuit and, instead, be provided the option of ending his or her employment or agreeing to mandatory withholding of loan repayments from paychecks to remain employed.
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> As bankruptcy practitioners, how can we understand this to be squared? Which of the two propositions needs to give way? Either County Counsel for the County of Ventura knows more than the Ninth Circuit, in which case the logic of In re Egebjerg is faulty, or the County must follow debtor's instruction to stop withholding loan repayments.
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> Fortunately for us in this case, the County consented to the jurisdiction of the bankruptcy court for all purposes.
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> The link, again, is:
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> http://www.mcpclawfirm.com/401k-loans-and-bankruptcy
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> Sent from my iPhone
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