Massachusetts Decision Addressing Controversial Means Testing Issues
By Nicholas Ortiz, Boston Bankruptcy Attorney on Jun 15, 2008 in Chapter 13 Bankruptcy
Massachusetts Bankruptcy Judge Feeney recently decided in re Mati, 2008 WL 2389234 (Bkrtcy.D.Mass.2008), a case addressing two important means testing issues for above-median income Chapter 13 debtors. This case is one of many now revealing how substantial the changes are to Chapter 13 practice after BAPCPA. Many of these changes are only now emerging after almost three years have passed since the 2005 amendments. I will deal with the first point of the decision in this post.
The Mati Court examined whether the debtor could exclude his 401(k) contributions from his disposable income in formulating his Chapter 13 plan payment. The Court put it this way: “The Court finds that the Debtor’s 401(k) contributions do not evidence bad faith under the totality of the circumstances in this case. The Debtor is merely taking advantage of what the law allows. Indeed, by excluding 401(k) contributions from property of the estate and expressly removing them from the definition of disposable income under section 1325(b), see 11 U.S.C. ยง 541(b)(7), Congress has implemented a policy of protecting and encouraging retirement savings.” Mati at 5.
The Court appropriately applied the plain language of the statute which excluded the retirement contributions from disposable income. However, I think that the quoted language is key for another reason: it recognizes that doing what the law allows is not bad faith. Some cases have implied that courts would attempt to use “bad faith” to do an end-run around the statute when its terms benefited debtors in permitting a result that was seen as inequitable or at odds with pre-amendment practice. Mati lends support to the contention that one is not acting in bad faith if they are doing no more or less than the law allows.
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