Penfound v. Ruskin, No. 19-2200 (6th Cir. 2021)
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In 1993-2017, Penfound worked for a company that provided its employees with a 401(k) plan and voluntarily contributed a portion of his wages to the plan. In 2017, Penfound transitioned to a new company, Protodesign, which did not offer a 401(k) plan. Penfound was unable to make further contributions to his retirement account. He left Protodesign in March 2018 and, weeks later started working for Laird, which offered a 401(k) plan. Penfound eventually resumed making contributions. In June 2018, Penfound and his wife filed for Chapter 13 bankruptcy, seeking to deduct $1,375.01 per month from their disposable income as voluntary contributions to John’s 401(k) retirement plan. The Trustee objected.
The bankruptcy court found that the Penfounds could “not exclude their voluntary contributions . . . from the calculation of disposable income.” The district court affirmed. In the meantime, the Sixth Circuit held that 11 U.S.C. 541(b)(7) “is best read to exclude from disposable income a debtor’s post-petition monthly 401(k) contributions so long as those contributions were regularly withheld from the debtor’s wages prior to her bankruptcy.” Rejecting a “good faith” argument, the Sixth Circuit affirmed as to Penfound, who had made no contributions within the six months pre-petition.
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