Debtor Allowed to Make Voluntary Contributions to Retirement Fund While Repaying Creditors

Jennifer Hepner

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff


           In In re Marlena Joy Pizzo, the United States Bankruptcy Court for the District of South Carolina held that a debtor may voluntarily contribute to her retirement plan while paying creditors under a bankruptcy plan. [1]  Following the filing of her petition for relief under Chapter 13 of title 11 of the United States Code (the “Bankruptcy Code”), Marlena Pizzo proposed a bankruptcy plan that would allow her to continue making contributions to her retirement plan, thereby resulting in unsecured creditors receiving less than 100% of their claims. Siegan, an unsecured creditor, objected to the plan arguing that Pizzo should be required to pay creditors in full before being allowed to fund her retirement plan.[2] Siegan also asserted that “Pizzo’s plan was not filed in good faith because Pizzo is not dedicating all of her disposable income toward the plan payments.”[3] Siegan asked the court to adopt a minority approach, which “precludes debtors from excluding any voluntary post-petition retirement contributions, even if the debtor was making contributions pre-petition.”[4]

           The court found Siegan’s arguments unconvincing and instead held that “post-petition voluntary retirement contributions are not considered disposable income[5], so long as such contributions are made in good faith.”[6] The court referred to 11 U.S.C. § 1325(b), which provides that, “if the trustee or the holder of an allowed unsecured claim objects, the debtor must either pay all allowed claims in full or the plan must provide that ‘all of the debtor’s projected disposable income’ be devoted to the Chapter 13 plan.”[7] Neither § 1325 nor § 707, which provides for situations in which the court may dismiss a Chapter 7 bankruptcy case or convert it to Chapter 11 or 13, explicitly authorizes retirement contributions as an expense in calculating disposable income[8], and § 541(b)(7) unambiguously “excludes funds already contained within a retirement account at the time of the filing the petition from the bankruptcy estate.”[9]  The court acknowledged that  “good faith is an independent requirement for confirmation of a Chapter 13 plan.”[10]  According to the court, it has broad discretion in determining whether a plan has been proposed in good faith[11] and should consider a totality of factors including “the debtor’s age in relation to his anticipated retirement to determine whether it would be unreasonable to reduce his or her retirement contributions during the length of the plan.”[12]

            Ultimately, the court found that Pizzo’s plan was proposed in good faith.”[13] Though she is only 36 years old, Pizzo has made voluntary contributions to her retirement account for several years, and these amounts are well within the allowable limit.[14] Additionally, a substantial portion of Pizzo’s unsecured debts will be paid through her Chapter 13 plan.[15]

            In conclusion, retirement contributions are not disposable income, and a repayment plan is not considered “in bad faith” simply because the debtor still plans to contribute to a retirement fund.  Accordingly, a debtor may, in good faith, continue making voluntary contributions to her retirement plan during the pendency of her bankruptcy case.

[1]In re Marlena Joy Pizzo, C/A No. 20-01758-HB, 2021 WL 2020297, at *1 (U.S. Bankr. Ct. May 20, 2021).

[2] Under the proposed plan, Siegan will receive a distribution less than 100% of her $44,000 claim.

[3] Id. at *2.

[4] Id. (citing Davis v. Helbig (In re Davis), 960 F.3d 346, 358 (6th Cir. 2020)).

[5] See id. Disposable income is measured by the means test contained in 11 U.S.C. §§ 1325(b)(2) and (3), and 707(b). The debtor’s “current monthly income” is “the average monthly income from all sources that the debtor receives” during the six months precedent filing of bankruptcy.

[6] Id. See also In re Cantu, 553 B.R. at 575.

[7] Id. at *2 (quoting 11 U.S.C. § 1325(b)(1)(B)).

[8] Id.

[9] Id. at *3.

[10] Id. (citing 11 U.S.C. § 1325(a)(3)).

[11] Id. (quoting In re Martinelli, 482 B.R. 537, 542 (Bankr. D.S.C. 2012).

[12] Id. (quoting RESFL FIVE, LLC v. Ulysse, C/A No. 16-CV-62900, 2017 WL 4348897, at *8 (S.D. Fla. Sept. 29, 2017).

[13] Id. (The Court concluded that bad faith cannot be inferred from the fact that Pizzo continues to contribute to her retirement plan instead of repaying her loan to Siegan in full).

[14] Id. (citing Retirement Topics – 403(b) Contribution Limits, IRS (Mar. 3, 2021), (setting the annual voluntary retirement contributions out of salary at $19,500.00)).

[15] Id.