9th Circuit Prohibits 401(k) Contributions During Chapter 13 Bankruptcy

In a recent case, In re Parks, No. 11-1366 (9th Cir. BAP, Aug. 6, 2012), the Bankruptcy Appellate Panel of the 9th Circuit ruled that Chapter 13 debtors cannot continue to make payroll contributions to a retirement plan during Chapter 13 bankruptcy period.  For the last few years, the bankruptcy courts around the country have been divided over whether Chapter 13 debtors can continue to make voluntary contributions to a retirement plan during the Chapter 13 repayment period.

The court held that instead of making voluntary contributions to a retirement plan (such as a 401(k) plan) through payroll deductions, a debtor must apply that money to his/her Chapter 13 repayment plan. Some courts in other areas of the country have allowed Chapter 13 debtors who are near retirement age to continue retirement plan contributions.

However, the 9th Circuit Bankruptcy Appellate Panel AP said that if a debtor is making payments on a retirement account loan, those payments may continue during the Bankruptcy repayment period. Moreover, in both Chapter 7 and Chapter 13 bankruptcy, the money that is already in a debtor’s retirement account when filing bankruptcy is safe.


Inside 9th Circuit Prohibits 401(k) Contributions During Chapter 13 Bankruptcy