Parks v. Drummond (In re Parks)

Summarized by Thomas Phinney , Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP
13 years 6 months ago

Citation:

BAP No. MT-11-1366-JuMkH (August 6, 2012)

Tag(s):

Ruling:

The BAP held that 541(b)(7)(A) excludes from property of the estate only those 401(k) contributions made before the petition date, and that Chapter 13 debtors' voluntary postpetition retirement contributions are disposable income under § 541(b)(7).

Procedural context:

The above-median chapter 13 debtors deducted voluntary postpetition 401(k) contributions in the amount of $318 per month from their monthly disposable income as part of their chapter 13 plan. The chapter 13 trustee (“Trustee”) objected. The bankruptcy court sustained the objection and denied confirmation, and the BAP affirmed.

Facts:

Whereas in a chapter 7 case, § 541(a)(6) provides that postpetition earnings of individuals debtors are not property of the estate, in a chapter 13 case, § 1306(a)(2) provides property of the estate includes earnings from services performed by the debtor after the commencement of the case. The main question in this case was the effect of § 541(b)(7)(A), which provides that property of the estate excludes any amount withheld by an employer from the wages of employees for payment as contributions to [retirement plans], “except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325(b)(2).” This latter phrase is not separately numbered and is referred to as a “hanging paragraph.” The “contextual conundrums” raised by§ 541(b)(7)(A) have “split the courts nationwide.” Compare In re Johnson, 346 B.R. 256, 263 (Bankr. S.D. Ga. 2006) (holding that § 541(b)(7) excludes all voluntary retirement contributions, both pre and postpetition, from disposable income) and In re Seafort, 669 F.3d 662, 673-74 (6th Cir. 2012) (holding § 541(b)(7) does not permit exclusion of postpetition voluntary retirement contributions in any amount when determining disposable income). Employing principles guiding the interpretation of ambiguous statutes, the BAP concluded that the most reasonable interpretation of § 541(b)(7)(A) is that it excludes from property of the estate only those 401(k) contributions made before the petition date. Thus, the Chapter 13 debtors' voluntary postpetition retirement contributions are disposable income under § 541(b)(7), and therefore such income must be applied to make plan payments under §1325(b)(1).

Judge(s):

JURY, MARKELL, and HOLLOWELL, Bankruptcy Judges

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