United States District Court, W.D. Louisiana, Shreveport Division
ELIZABETH ERNY FOOTE UNITED STATES DISTRICT JUDGE
the Court is an appeal filed by debtors, Donald Eugene Miner
and Sandra Randolph Miner (“the Miners” or
“Appellants”), of the Bankruptcy Court's
March 14, 2017 order denying their proposed Chapter 13 plan.
[Rec. Doc. 1]. The Trustee, Todd S. Johns
(“Trustee” or “Appellee”), opposes
the appeal and recommends that the Court affirm the
Bankruptcy Court's order. [Rec. Doc. 9]. For the reasons
assigned herein, the order of the Bankruptcy Court is hereby
REVERSED and REMANDED for
further proceedings consistent with this Memorandum Ruling.
March 17, 2016, the Miners filed a voluntary joint petition
for Chapter 13 bankruptcy relief. [Bankr. Doc.
Donald Miner, age 62, is employed full time at Rose Neath
Funeral Home where he earns a gross monthly income of $5,
788.61. He is also employed part time at Aulds Funeral Home
where he earns an additional $525.00 per month. Sandra Miner,
age 52, is disabled and receives Social Security. The Miners
are above median income, and therefore have an applicable
commitment period of 60 months to complete Chapter 13
bankruptcy. See 11 U.S.C. §
1325(b)(4). The Miners filed their first proposed
Chapter 13 Plan on March 24, 2016. [Bankr. Doc. 8]. However,
the Trustee and several creditors objected to the Plan.
[Bankr. Docs. 21, 24, 26, 29]. On September 14, 2016, the
Miners filed an Amended Plan. [Bankr. Doc. 46]. The same day
the Miners also filed Amended Schedules I and J, which
reflected Mr. Miner's voluntary monthly contributions to
his 401(k) retirement plan in the amount of $700.82 (12% of
his salary), and repayment to a 401(k) loan in the amount of
$356.18 per month. [Bankr. Doc. 49]. Amended Schedule J
indicated that Mr. Miner's 401(k) loan would be paid off
February 20, 2020. Id. Amended Schedule I reflected
that Mrs. Miner's only source of income is $1, 253.00
from Social Security. Id.
October 5, 2016, the Trustee filed objections to the
confirmation of the Debtors' proposed Plan because it
failed to increase payments to unsecured creditors after Mr.
Miner's 401(k) loan repayments are complete. [Bankr. Doc.
52]. The Trustee questioned whether the Plan was proposed in
good faith given Mr. Miner's monthly $700.82 voluntary
contribution to his retirement fund, which is 12% of his
gross monthly income. [Bankr. Doc. 52, 57]. However, after
considering the inclusion of Mrs. Miner's Social Security
income in addition to Mr. Miner's income on the overall
budget, the Trustee withdrew his objections, recommended
confirmation of the Plan, and submitted a proposed order of
confirmation for the Court's approval. [Bankr. Doc. entry
dated Nov. 9, 2016].
January 16, 2017, the Bankruptcy Court denied confirmation of
the proposed Plan as follows:
Denied without prejudice, hearing required. Hearing set 9:30
a.m. on 3/8/2017. Combined, the debtor's voluntary 401(k)
contribution and 401(k) loan repayment calculate to about 18%
of his income. This plan only pays a 16% unsecured dividend.
[Bankr. Doc. 60].
March 8, 2017, a confirmation hearing was held. [Bankr. Doc.
82]. Mr. Miner was the only witness called to testify.
Id. He was questioned by his own counsel, counsel
for the Trustee, and the Bankruptcy Court. Id. The
matter was taken under advisement. Id. Thereafter,
the Bankruptcy Court issued an order and opinion denying
confirmation. [Bankr. Doc. 64]. The Bankruptcy Court's
order contained the following holdings: (1) the Miners failed
to meet their burden of proof for confirmation; (2) Mr.
Miner's post-petition voluntary payments to his 401(k)
plan are properly considered disposable income; (3)
post-petition voluntary 401(k) contributions are allowed in
Chapter 13 cases; (4) post-petition 401(k) contributions are
limited by the good faith requirements of the Code; and (5)
Mr. Miner cannot offset increased 401(k) contributions with
his wife's Social Security income. Id. at 7.
Bankruptcy Court also provided general guidance regarding
retirement account contributions to the Chapter 13 bar,
stating that in the future the Bankruptcy Court will presume
that a 3% voluntary contribution to a retirement plan is
reasonable. Id. at 20. The Bankruptcy Court would
consider allowing retirement contribution amounts greater
than 3% if found to be reasonable on a case-by-case basis
using a “totality of the circumstances” approach.
Miners filed an Amended Plan to comply with the Bankruptcy
Court's concerns, which reduced Mr. Miner's voluntary
401(k) contribution to $178.63 per month, or 3% of his gross
income. [Bankr. Docs. 66 and 70]. The 401(k) loan repayment
was not changed and remained at $356.18. Id. The
Miners also filed Amended Schedules I and J. [Bankr. Doc.
72]. No objections were filed, and the Bankruptcy Court
confirmed the Amended Plan on June 26, 2017. [Bankr. Doc.
74]. The Miners have appealed the Bankruptcy Court's
denial of their original proposed Plan. [Bankr. Doc. 76].
Court has appellate jurisdiction over final judgments,
orders, and decrees issued by the bankruptcy court. 28 U.S.C.
reviewing a decision by the Bankruptcy Court, this Court
functions as an appellate court, applying the same standards
of review generally applied to federal appellate courts.
Webb v. Reserve Life Ins. Co., 954 F.2d 1102,
1103-04 (5th Cir. 1992). This Court reviews discretionary
decisions made by the Bankruptcy Court under an abuse of
discretion standard. In re ASARCO LLC, 702 F.3d 250,
257 (5th Cir. 2012). This Court reviews a Bankruptcy
Court's findings of fact for clear error. Id.
Legal conclusions are reviewed de novo. Id.
AND ANALYSIS 
Whether the Bankruptcy Court properly determined that Mr.
Miner's voluntary retirement contributions should be
included as disposable income.
Bankruptcy Court held that Mr. Miner's post-petition
voluntary 401(k) contributions are considered disposable
income under the Bankruptcy Code, and should be included in
determining the amount of funds available to pay unsecured
creditors pursuant to 11 U.S.C. § 1325(b)(1)(B). [Bankr.
Doc. 64 at 8]. Appellants argue that the Bankruptcy Court
erred, and that post-petition retirement contributions are
excluded from disposable income. [Rec. Doc. 8 at 7-10]. The
Trustee argues that the Bankruptcy Court was correct in
finding that the contributions are disposable income. [Rec.
Doc. 9 at 6].
properly analyze this issue, the Court must begin with the
statutory language of the Bankruptcy Code. The filing of a
bankruptcy petition creates a bankruptcy estate, which is
comprised of all of a debtor's legal and equitable
interests in property unless specifically excluded by
statute. 11 U.S.C. § 541(a). In a Chapter 13 proceeding
the estate also includes property and earnings acquired by
the debtor “after the commencement of the case but
before the case is closed, dismissed, or converted.” 11
U.S.C. §§ 1306(a)(1) and (2). A Chapter 13 Plan
must demonstrate that all of a debtor's projected
disposable income received during the pendency of the
bankruptcy must be paid to unsecured creditors. 11 U.S.C.
§ 1325(b)(1)(B); see Hamilton v. Lanning, 560
U.S. 505, 509 (2010).
term “disposable income” is defined by section
1325(b)(2)(A) 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. Lanning, 560 U.S. at 510.
“Current monthly income” is determined by
calculating 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 Bankruptcy Court may also factor
in known or virtually certain upcoming changes in a
debtor's monthly income or expenses at the time of
confirmation. Id. at 524.
2005, Congress passed the Bankruptcy Abuse Prevention and
Consumer Protection Act (“BAPCPA”) to correct
certain perceived abuses within the bankruptcy system.
See Milavetz, Gallop & Milavetz PA v. United
States, 559 U.S. 229 (2010). BAPCPA newly defined the
phrase “amounts reasonably necessary to be
expended” for above median income debtors to include
only certain specified expenses. See 11 U.S.C.
§ 1325(b)(3). To determine the “amounts reasonably
necessary to be expended” for above income debtors,
section 1325(b)(3) requires that expenditures be calculated
using a “means test” in accordance with 11 U.S.C.
§§ 707(b)(2)(A) and (B). These sections set forth
various expenses, such as housing, transportation, food, and
insurance expenses, which may be deducted from a debtor's
overall disposable income available to repay unsecured
creditors. Neither section 1325(b)(2) nor section
707(b)(2)(A) and (B) explicitly authorize 401(k)
contributions as an allowable expense in calculating
disposable income. In re Vanlandingham, 516 B.R.
628, 632 (Bankr. Kan. 2014).
401(k) contributions should be considered disposable income
available to unsecured creditors, or whether such
contributions are excluded from disposable income remains an
unsettled question. The uncertainty is a result of the
implementation of BAPCPA, which made significant, and at
times inartful, changes to the bankruptcy code. Prior to the
enactment of BAPCPA, both 401(k) loan repayments and 401(k)
contributions were considered disposable income and were not
a necessary expense. See In re Anes, 195 F.3d 177,
180-81 (3d Cir. 1999); In re Hill, 328 B.R. 490, 495
(Bankr.S.D.Tex. 2005); In re Cornelius, 195 B.R.
831, 835 (Bankr. N.D.N.Y. 1995). However, BAPCPA added two
sections affecting both 401(k) loans and contributions.
See 11 U.S.C. § 1322(f) and 11 U.S.C. §
541(b)(7). There is a consensus among bankruptcy courts that
BAPCPA's addition of section 1322(f) unequivocally states
that a debtor's repayment of a 401(k) loan is a necessary
expense and cannot be treated as disposable
income. And indeed, the Bankruptcy Court in this
case recognized this principle and did not include Mr.
Miner's 401(k) loan repayments as disposable income.
[Bankr. Doc. 64 at 9]. Unfortunately, there are highly
divergent interpretations of 11 U.S.C. § 541(b)(7) and
its application to voluntary 401(k) contributions.
541(b)(7) has been described by courts as having “an
oddly worded hanging paragraph” that references the
concept of Chapter 13 disposable income within section 541,
which defines “property of the estate” across the
entire bankruptcy code. See In re Vanlandingham, 516
B.R. at 632 (citing In re Drapeau, 485 B.R. 29, 34
(Bankr. D. Mass. 2013)).
541(b)(7) is found within Chapter 541 “Property of the
Estate” and sets forth property that is excluded ...