25 Jan Can I Contribute to or Repay a Loan to 401k in Chapter 13 Bankruptcy?
January 18, 2008, Jacksonville, Florida – A recent case out of the Jacksonville Division of the Middle District of Florida has held that neither 401k contributions nor 401k loan repayments are included in a Chapter 13 debtor’s disposable income, without regard to whether the debtor is above or below median income.
Despite a whole line of prior court decisions that opposed him, Jacksonville Consumer Bankruptcy Attorney, Douglas Higginbotham, successfully argued that the 2005 amendments to the Bankruptcy Code, known as BAPCPA, effectively changed the pre-amendment law. Judge Jerry A. Funk held, “The addition of Section541(b)(7) and 1322(f) to the Bankruptcy Code statutorily overruled [prior case law].”
Following recent decisions out of New Hampshire and Georgia, Judge Funk found that Congress intended neither 401k contributions nor 401k loan repayments to be ignored when calculating how much of the debtor’s money is left over to pay general unsecured claims. In other words, a debtor’s normal contribution to his 401k is an allowable deduction from his income, as is his repayment of a 401k loan.
Therefore, you can continue to contribute to your 401k and/or continue to repay a 401k loan while in a Chapter 13 bankruptcy.
Thank you, Doug, for your excellent work on behalf of consumer debtors.
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