Emory Bankruptcy Developments Journal


Following the 2005 amendments to the Bankruptcy Code, the majority of chapter 13 debtors have been successful in minimizing their repayment obligations to creditors while bolstering their financial stability during retirement. The Bankruptcy Code allows chapter 13 debtors to retain their assets and repay their debts to creditors using their earned income. Alternatively, debtors may simply avoid some of the liability by dedicating a portion of their earned income for reasonably necessary expenses. Judicial inconsistencies have emerged concerning whether voluntary post-petition 401(k) retirement contributions for chapter 13 debtors constitute disposable income in accordance with Sections 541(b)(7) and 1325(b) of the Bankruptcy Code.

A majority of courts follow the Johnson approach, whereby all post-petition 401(k) contributions are excluded from a debtor’s disposable income, and therefore out of reach for creditors. Other bankruptcy courts follow the Prigge approach, whereby post-petition 401(k) contributions are included as disposable income available to creditors. Still other courts follow the Seafort approach, whereby post-petition 401(k) contributions are excluded from disposable income only if such contributions were made pre-petition.

This Comment argues that excluding post-petition 401(k) contributions from the debtor’s disposable income available to creditors—the approach followed by most courts—undermines the “fresh start” goal of consumer bankruptcy. After highlighting the shortcomings of the current post-petition 401(k) contribution analysis, this Comment suggests that there lies a strong argument for including post-petition 401(k) contributions in a debtor’s disposable income, thereby curbing the opportunity for abuse and restoring the balance between debtors and creditors.