In re Whitt

Decision Date19 February 2020
Docket NumberCASE NO. 19-03801-NPO
Citation616 B.R. 323
Parties IN RE: Annalyn Nelson WHITT, Debtor.
CourtU.S. Bankruptcy Court — Southern District of Mississippi

Thomas Carl Rollins, Jr., The Rollins Law Firm, PLLC, Ridgeland, MS, for Debtor.


Judge Neil P. Olack, United States Bankruptcy Judge

This matter came before the Court for hearing on December 16, 2019 (the "Hearing"), on the Trustee's Objection to Confirmation (the "Objection") (Dkt. 17) filed by James L. Henley, Jr., the duly appointed standing chapter 13 trustee (the "Trustee") in the above-referenced bankruptcy case. At the Hearing, Tylvester O. Goss represented the Trustee and Thomas C. Rollins, Jr. represented the debtor, AnnaLyn Nelson Whitt (the "Debtor"). At the Hearing, the Court instructed the parties to file briefs on a legal issue regarding the proper calculation of the Debtor's disposable income. The Trustee filed the Brief of James L. Henley, Jr., Standing Chapter 13 Trustee in Support of Trustee's Objection to Confirmation (the "Trustee's Brief") (Dkt. 20) and the Debtor filed the Debtor's Brief (the "Debtor's Brief") (Dkt. 22).1 The Court issued the Order Requiring Supplemental Brief from Annalyn Nelson Whitt (Dkt. 23) on January 31, 2020, requiring the Debtor to file a supplemental brief to address a factual allegation in the Trustee's Brief. On February 5, 2020, the Debtor filed the Debtor's Reply Brief (the "Debtor's Supplemental Brief") (Dkt. 25). After fully considering the matter, the Court finds as follows:2


This Court has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (L). Notice of the Hearing was proper under the circumstances.


The Debtor filed a Voluntary Petition for Individuals Filing for Bankruptcy (Dkt. 1) under chapter 13 of the Bankruptcy Code on October 24, 2019. The Debtor scheduled $189,258.00 of debt secured by property on Schedule D: Creditors Who Have Claims Secured by Property ("Schedule D"). (Dkt. 4 at 11-12). On Schedule D, the Debtor listed a mortgage on her home located at 306 Millcreek Drive, Brandon, MS 39047 with a codebtor in the amount of $178,332.00 and a claim in the amount of $10,926.00 secured by a 2015 Honda Pilot EX. (Dkt. 4 at 11-12). The Debtor scheduled $156,267.00 of unsecured debt on Schedule E/F: Creditors Who Have Unsecured Claims ("Schedule E/F"). (Dkt. 4 at 13-18). Student loans accounted for $120,352.00 of the Debtor's Schedule E/F debt. (Dkt. 4 at 18). The bar date for non-governmental claims was January 2, 2020. The timely-filed claims against the Debtor amount to $274,693.60 of which $84,883.91 are general, unsecured claims.3

On Schedule I: Your Income ("Schedule I"), the Debtor listed that she is currently employed at Aledade, Inc. and receives monthly wages of $4,817.40. (Dkt. 4 at 21). Among other payroll deductions, the Debtor listed a $144.52 payment each month for "Voluntary contributions for retirement plans." (Dkt. 4 at 22). The Debtor listed additional income of $527.00 per month in family support. Her total monthly income is $4,080.99. (Dkt. 4 at 22). On Schedule J: Your Expenses ("Schedule J") (Dkt. 4 at 24), the Debtor listed her monthly expenses of $1,920.00 for her household that includes three (3) dependents. (Dkt. 4 at 23-24). The Debtor uses a household size of four (4) for calculating median family income. The median family income for a household of four (4) in Mississippi is greater than the Debtor's average monthly income. (Dkt. 4 at 36). The Debtor, therefore, is a below-median income debtor allowing her to designate a thirty-six (36)-month commitment period. According to Schedule J, the Debtor's monthly disposable income under 11 U.S.C. § 1325(b)(2)4 is $2,160.99. (Dkt. 4).

On October 24, 2019, the Debtor filed a Chapter 13 Plan and Motions for Valuation and Lien Avoidance (the "Proposed Plan") (Dkt. 2). The Debtor proposes to make semi-monthly payments to the Trustee of $1,080.21 and make her mortgage payments and car payment through the Proposed Plan. (Dkt. 2 at 1-3). The Proposed Plan distributes zero percent (0%) to unsecured creditors.

On December 3, 2019, the Trustee filed the Objection claiming that the Proposed Plan was not filed in good faith. (Dkt. 17). The Trustee suggests that paying zero percent (0%) to unsecured creditors while continuing to contribute to a voluntary 401(k) plan in the amount of approximately $144.52 per month (three percent (3%) of her salary), or $8,671.20 over the life of the Proposed Plan, does not adhere to the Debtor's obligation that "the plan provides that all of the debtor's projected disposable income ... will be applied to make payments to unsecured creditors under the plan." (Dkt. 17 ¶ 3 (citing 11 US.C. § 1325(b)(1)(B) )). The Trustee asks the Court to deny confirmation of the Proposed Plan or, in the alternative, to require the Debtor to modify the Proposed Plan to increase the distribution to unsecured creditors.


Whether 401(k)5 contributions should be considered disposable income or whether such contributions are excluded from disposable income is an unsettled question in this jurisdiction. The Fifth Circuit Court of Appeals has not made a determination on the correct treatment of voluntary 401(k) contributions for chapter 13 debtors in bankruptcy. To analyze the issue, the Court begins with the language and structure of the Bankruptcy Code.

The filing of a bankruptcy petition creates a bankruptcy estate comprised of the debtor's legal and equitable interests in property unless excluded by statute. 11 U.S.C. § 541(a). For chapter 13 debtors, the estate also includes property and earnings acquired "after the commencement of the case but before the case is closed, dismissed, or converted." 11 U.S.C. § 1306(a)(1), (2). A chapter 13 plan must demonstrate that all of a debtor's projected disposable income received during the life of the plan will be paid to unsecured creditors. 11 U.S.C. § 1325(b)(1)(B) ; see Hamilton v. Lanning , 560 U.S. 505, 509, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010).

Disposable income is defined as " ‘current monthly income received by the debtor’ less ‘amounts reasonably necessary to be expended’ for the debtor's maintenance or support, for qualifying charitable contributions, and for business expenditures." Hamilton , 560 U.S. at 510, 130 S.Ct. 2464. The "current monthly income" calculation is an average of the debtor's monthly income during a look-back period, generally consisting of the six months preceding the filing of the bankruptcy petition. Id. The Court also may consider known or virtually certain upcoming changes in the debtor's monthly income or expenses at the time of the confirmation of the plan. Id. at 524, 130 S.Ct. 2464.

As to the second part of the equation for calculating disposable income, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") in 2005 to correct perceived issues within the bankruptcy system. In determining the "amounts reasonably necessary to be expended," below-median debtors may include expenses "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)(A)(i). Above-median debtors, however, must use the means test under 11 U.S.C. § 707(b)(2)6 to determine the "amounts reasonably necessary to be expended." 11 U.S.C. § 1325(b)(3). Neither § 1325 nor § 707 explicitly authorizes 401(k) contributions as an allowable expense in calculating disposable income. Miner v. Johns (In re Miner) , 589 B.R. 51, 56 (W.D. La. 2018).

Prior to BAPCPA, 401(k) contributions were considered disposable income and were not a necessary expense. See In re Hill , 328 B.R. 490, 495 (Bankr. S.D. Tex. 2005). BAPCPA added two sections affecting 401(k) contributions, § 541(b)(7) and § 1322(f).7

Some courts have attributed the interpretive dispute regarding § 541(b)(7), which refers to chapter 13 disposable income, to its placement in § 541, a statute that defines "property of the estate." See In re Vanlandingham , 516 B.R. 628, 632 (Bankr. D. Kan. 2014). Section 541(b)(7) sets forth property that is excluded from the bankruptcy estate as follows:

(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—
(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;
(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) 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) ; or
(ii) to a health insurance plan regulated by State law whether or not subject to such title[.]

11 U.S.C. § 541(b)(7). There are three distinct approaches to analyzing the relationship between § 541(b)(7) and § 1325(b)(2).

A. The Three Approaches

The first view holds that all voluntary retirement contributions, both prepetition and postpetition, are permitted under § 541(b)(7), limited only by the good faith requirement of § 1325(a)(3). Baxter v. Johnson (In re Johnson) , 346 B.R. 256 (Bankr. S.D. Ga. 2006). The second view holds that § 541(b)(7) does not permit postpetition voluntary retirement contributions in any amount regardless of whether the debtor was making prepetition retirement contributions. In re Prigge , 441 B.R. 667 (Bankr. D. Mont. 2010). The third view reads § 541(a) and § 541(b)(7) as limiting voluntary contributions to those amounts being made as of the petition date and holds that §...

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