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Sixth Circuit Stands Alone on Chapter 13 Voluntary Retirement Contributions

Sixth Circuit Stands Alone on Chapter 13 Voluntary Retirement Contributions

A Miami, Florida District Court Judge recently ruled that a Chapter 13 debtor who is near retirement age may defer over $114,000 in voluntary retirement contributions during the life of his Chapter 13 plan, while paying general unsecured creditors a total of $12,000.00. This ruling follows the majority of Circuits, which allow a Chapter 13 debtor to exclude voluntary retirement contributions from the disposable income calculation, so long as the plan is filed in good faith. The Judge in RESFL Five LLC v. Ulysse, 16-62900 (S.D. Fla. Sept. 29, 2017), based her ruling on the majority view that 11 U.S.C. § 541(b)(7) does not limit a debtor’s ability to make voluntary contributions to a retirement account, whether they be made pre-or post-petition, because the exceptions of § 541(b)(7) are contained within the premise of section § 1306. By contrast, the Sixth Circuit Bankruptcy Appellate Panel’s ruling in In re Seafort, 437 B.R. at 210, focused on Congress’s placement of the exclusion of voluntary contributions within § 541, as opposed to § 1306, and concluded that “§ 541(b)(7) does not exclude income which becomes available post-petition in order to start making contributions to a 401(k) plan.” The panel reasoned that this subsection’s placement within § 541 limited its application to pre-petition contributions. RESFL Five LLC v. Ulysse criticized the Sixth Circuit for relying on the placement of § 541, characterizing § 541 as being “outside” the scope of the Chapter 13 provisions. The Florida District Judge saw no statutory basis for allowing retirement contributions only if the debtor was making them before the bankruptcy started. Moreover, the Judge also considered the fact that the debtor making the voluntary contributions was close to retirement age, and therefore should be allowed to continue making voluntary contributions to his retirement account. To rule otherwise, would deprive the debtor of his fresh start. This case is a reminder that Bankruptcy Courts are courts of equity, and that circuit splits such as this provide for significantly varied outcomes for debtors in otherwise similar situations.

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