United States District Court, E.D. Michigan, Southern Division
JOHN S. PENFOUND and JILL L. PENFOUND, Appellants,
DAVID Wm. RUSKIN, CHAPTER 13 TRUSTEE, Appellee.
MEMORANDUM AND ORDER AFFIRMING THE DECISION OF THE
COHN UNITED STATES DISTRICT JUDGE
a Chapter 13 bankruptcy appeal. Appellants John and Jill
Penfound (Debtors) appeal the bankruptcy court's order
confirming a repayment plan. Specifically, the Debtors
challenge the bankruptcy court’s determination that
Debtors may not exclude their voluntary post-petition
contributions to their 401(k) retirement plan from the
calculation of disposable income. The Trustee, as Appellee,
contends that the Debtors’ payments to their 401(k) are
considered part of disposable income. The Court agrees based
on its reading of relevant Sixth Circuit law. Accordingly,
the decision of the bankruptcy court is AFFIRMED.
filed for Chapter 13 bankruptcy on June 22, 2018. Line 5(c)
of Debtors’ Schedule I reflects a voluntary
contribution to John Penfound’s 401(k) retirement
account in the amount of $1, 375.01 per month. John Penfound
has been employed at Laird Technologies, Inc. since May 7,
2018. He previously worked at Protodesign, Inc. from August
2017 to March 2018. Prior to Protodesign, John Penfound
worked at Jabil/Iqor from 1993 to 2017. During his tenure at
Laird and Jabil/Iqor, he always contributed to his 401(k)
retirement accounts; Protodesign did not offer a retirement
plan. John Penfound is 54 years old and intends on retiring
at age 62 – approximately three (3) years after the
expiration of his Chapter 13 Plan. It has always been his
intention to continue making voluntary contributions to his
August 6, 2018, Debtors filed a First Amended Chapter 13
Plan. The Plan proposed a payment of $513.30 bi-weekly over
sixty (60) months with a minimum dividend to Class 9 general
unsecured creditors in the amount of $22, 175.56, or
approximately 5.5% of the unsecured claims. The Plan also
deducted Debtors’ voluntary monthly contribution to
John Penford’s 401(k) plan in the amount of $1, 375
from disposable income. The Trustee objected to
Debtors’ exclusion of their voluntary retirement
contributions because it would place approximately $82, 000
out of the reach of unsecured creditors.
bankruptcy court concluded that based on relevant case law,
particularly In re: Seafort, 669 F.3d. 662 (6th Cir.
2012); and In re: Rogers, No. 12-32558 (Bankr. E.D.
Mich. Oct. 15, 2012) (unpublished), the Debtors may not
exclude voluntary contributions to their 401(k) retirement
plan from the calculation of disposable income. The
Bankruptcy Court further held that the retirement
contributions must be paid into the Debtors’ First
Amended Plan. Debtors subsequently requested confirmation
with a payment increase to comply with the court’s
ruling. The confirmation order increased Debtors’ Plan
payment from $513.30 biweekly to $1, 147.92 bi-weekly
effective October 18, 2018 with a step payment increase to
$1, 714.62 bi-weekly effective September 1,
appeal to the district court from an order of the bankruptcy
court, “the district court is required to review the
bankruptcy court’s legal conclusions de novo and review
factual questions on a clearly erroneous standard.”
In re Araj, 371 B.R. 240, 241 (E.D. Mich. 2007)
(citing In re Burns, 322 F.3d 421, 425 (6th Cir.
2003)); In re Made in Detroit, 414 F.3d 576, 580
(6th Cir. 2005).
term “disposable income” is defined in relevant
part as “current monthly income received by the debtor
. . . less amounts reasonably necessary to be expended . . .
for the maintenance and support of the debtor.” 11
U.S.C. § 1325(b)(2)(A)(i). If a debtor has an above
median monthly income, the “amounts reasonably
necessary to be expended” is determined by the
“means test” set forth in § 707(b)(2). 11
U.S.C. § 1325(b)(3).
bankruptcy court held that the Debtors voluntary
post-petition retirement contributions are not deducted from
disposable income and are therefore included in the
calculation of “projected disposable income”
available to pay creditors. As noted above, the bankruptcy
court relied primarily on two cases: In re: Seafort
and In re: Rogers.
Seafort, the Sixth Circuit considered whether income
that becomes available after a debtor repays a 401(k) loan
during the plan period is “projected disposable
income” to be paid to unsecured creditors or whether
the income can be used to begin making voluntary
contributions to the debtors’ 401(k) plans and deemed
excludable from both disposable income and property of the
estate under 11 U.S.C. § 541(a)(1) and
Sixth Circuit first discussed the “competing
views” regarding voluntary ...