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You are here: Home / 401K / Sixth Circuit Limits When Chapter 13 Debtors Can Pay into 401k

Sixth Circuit Limits When Chapter 13 Debtors Can Pay into 401k

August 10, 2021 by Retirement

Benefits & Executive Comp

Aug. 10, 2021, 6:52 PM

  • 401k withholdings are disposable income without six months of prior contributions
  • Chapter 13 debtor sought to categorize contributions as expenses

A bankrupt individual’s planned salary withholdings for his 401(k) retirement fund should be considered part of his disposable income for creditor payout calculations, if he failed to regularly contribute for at least six months prior to the bankruptcy filing, the Sixth Circuit ruled.

Without six months of contribution leading up to the bankruptcy, a Chapter 13 debtor can’t deduct the money as expenses that would be protected from creditors’ reach, the U.S. Court of Appeals for the Sixth Circuit said Tuesday.

A debtor’s past history of 401k contributions doesn’t create exceptions to the law, the court’s three-member panel said.

“[T]he …

Daniel Gill

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