Child Support Income and Retirement Loan Repayments On the Means Test
Child support (but not alimony) income is deducted on Form 122 in chapter 13 but not in chapter 7. The same is true of contributions to a retirement plan and of payments on a loan against a retirement plan.
This difference raises the question whether a debtor can achieve budget eligibility for chapter 7 on grounds that his retirement contribution or loan repayment, or his child support, would cause his chapter 13 plan payment to be zero.
Judge Cornish answered this question in In re Johns, 342 B.R. 626 (Bankr.E.D.Okla., 2006), in which he held that an over-abuse debtor cannot avoid dismissal of his chapter 7 case by arguing that his 401k loan payment is a “special circumstance” under Section 707(b) because the loan repayment would be deductible in chapter 13 and reduce his plan payment to zero. A Florida bankruptcy court agreed in In re Tauter, 402 B.R. 903 (Bankr.M.D.Fla., 2009), as did an Ohio district court in Eisen v. Thompson, 370 B.R. 762 (N.D. Ohio, 2007). On the other hand, in In re Delbecq, 368 B.R. 754 (Bankr. S.D. Ind., 2007), the court disagreed with the Johns holding and concluded that a student loan was a “special circumstance” that could be deducted under 707(b).
A slightly more recent list of decisions on the subject appears at footnote 16 in In re Harmon (Bankr. E.D. Pa., 2011): “Compare Delbecq, 368 B.R. at 760 (“there is simply no logic to essentially forcing a debtor into a Chapter 13 case if the distribution in that case will yield nothing to unsecured creditors”); In re Skvorecz, 369 B.R. 638, 644 (Bankr. D. Colo. 2007) (“If part of the intent of Congress in tying Chapter 7 relief to a means test, was to require a debtor to repay his creditors if he is able to, then it would be nonsensical that the very payments or expenses which tip the calculation so as to create the presumption of abuse, an indication of an ability to repay, are the same payments or expenses that are excepted from “disposable income” in a Chapter 13″) with Lightsey, 374 B.R. at 382; In re Johns, 342 B.R. 626, 629 (Bankr. E.D.Okla. 2006); In re Castle, 362 B.R. 846, 850-51 (Bankr. N.D. Ohio 2006).”
Applicable statutes: 11 U.S.C. Sections 101(10A)(defining “current monthly income”); 11 U.S.C. Section 707(b)(2)(A)(utilizing “current monthly income”); 11 U.S.C. Section 1325(b)(2)(utilizing “disposable income” and defining it as “current monthly income” less certain things such as child support); 11 U.S.C. Section 541(b)(7)(A) and (B) (providing that certain employment-related retirement payments and withholdings “shall not constitute disposable income, as defined in section 1325 (b)(2)”).
In order to be deductible in chapter 13, must the retirement plan loan repayment be wage-deducted, or will a draft on the debtor’s bank account suffice? 11 U.S.C. Section 541(b)(7)(B) refers to an amount “received” by an employer from employees for payment as contributions, not “withheld”. Therefore the answer to that question is yes.