In Re: Jorden Marie Saldana

Background

Jorden Marie Saldana filed a voluntary Chapter 13 bankruptcy case on April 13, 2022. The opinion states that she was single, had no dependents, and earned gross monthly income of $8,081 as a surgical technician. Her budget included a $484 monthly voluntary retirement contribution and payments on two retirement loans.

Saldana initially proposed a plan requiring $300 monthly payments for 60 months, with no distribution to general unsecured creditors. Her initial means-test calculation deducted $601 per month for the retirement-loan payments. She later filed an amended means test that increased the retirement-related deduction to $747, including the $484 voluntary retirement contribution.

The Chapter 13 trustee objected to confirmation of the plan. The trustee later argued that Saldana was not entitled to deduct her ongoing voluntary retirement contributions from disposable income. The Bankruptcy Court sustained the trustee’s objection on July 28, 2022. Saldana then filed amended plans and amended means tests that removed the deduction for ongoing voluntary retirement contributions. The Bankruptcy Court confirmed her Third Amended Plan on September 26, 2022.

Issue and positions

The appeal presented two related questions: whether the Bankruptcy Court improperly treated voluntary retirement contributions as a means-test deduction, and whether it improperly confirmed a plan based on that interpretation of the Bankruptcy Code.

Saldana urged the district court to hold that voluntary retirement contributions in an amount established before bankruptcy were not disposable income. She asked the court to adopt either an approach based on “current monthly income” or the statutory interpretation used by the Sixth Circuit in a cited decision. The trustee asked the court to affirm and follow the Ninth Circuit Bankruptcy Appellate Panel’s approach in another cited decision.

Court’s analysis

The district court reviewed the statutory interpretation issue without deference because it was a purely legal question. Section 1325 of the Bankruptcy Code requires a Chapter 13 plan, after a trustee’s objection, to apply the debtor’s projected disposable income during the required commitment period toward payments to unsecured creditors. For an above-median-income debtor, the amount of expenses reasonably necessary to be deducted is determined through the statutory means test.

The court examined Section 541(b)(7), which excludes certain amounts withheld from an employee’s wages for contributions to a retirement plan from property of the bankruptcy estate and states that those amounts do not constitute disposable income. The court concluded that this provision excludes voluntary retirement contributions made before the bankruptcy petition date from property of the estate. It does not exclude voluntary contributions made after the petition date from disposable income.

The court relied on the structure of the Bankruptcy Code, including the provisions governing property of the estate and post-petition earnings. It also noted that Congress expressly excluded repayment of certain retirement loans from disposable income in Section 1322(f), but did not create the same express exclusion for post-petition voluntary retirement contributions. The court further observed that the means-test provisions and related Internal Revenue Service guidance do not identify voluntary retirement contributions as necessary expenses, although the guidance does not control the statutory interpretation.

Holding and disposition

The court held that voluntary contributions to a 401(k) retirement account made after the filing of a Chapter 13 petition are disposable income. It therefore held that Saldana’s voluntary retirement contributions were properly included as disposable income.

The district court AFFIRMED the Bankruptcy Court’s Order Sustaining Objection to Confirmation and its Confirmation Order.