When you file for a Chapter 13 bankruptcy, the Means Test determines what your disposable income is which will be what your monthly payment will be in your plan (see below for quick blurb on what a Ch13 is). The IRS and Congress determines what is considered necessary expenses that can be deducted from your gross income. Unfortunately, they have determined that voluntary 401K contributions are not deductible from your income in bankruptcy.
I don’t feel like this complete ban properly serves the socio and economic situation our country is in. Since I can remember in my adult life, I have heard countless warnings that by the time my generation is at retirement age, social security will no longer be able to fund our retirement. They’ve begun pushing back the age of retirement to try and avoid this scenario. They encourage my generation to begin saving for retirement as soon as possible to try and alleviate the problem. Yet I wonder have they considered that maybe they should encourage retirement also in the contact of bankruptcy?
If my generation did not save for retirement and social security does become a thing of the past, then my whole generation will only be a social programs drain on future generations. Tax payers would have to pay to help care for the older generation which would take money away from that generations ability to pay. I would think it would be in the government’s best interest to allow at least some contribution to retirement even while in bankruptcy because it is a necessity not just for the individual but for society and future generations.
Unfortunately that is not the case, and likely because of lobbyists employed by the creditors. The rationale within bankruptcy is that the money you would have been contributing to your retirement needs to go to paying off your creditors. That is only fair or is it to the future tax payers that may have to support the older generation?
If you are planning for your retirement and would like more information even if it’s not involving bankruptcy, please contact us and we may be able to help you and if not we can direct you toward the right resources.
Think of it like debt consolidation. What happens is you put al your debt into a 3 or 5 year plan. You make monthly plan payments on it and the Trustee takes those payments to disburse to your creditors. So long as you do not miss any payments, after expiration of 3 or 5 years whatever creditors are not paid are then discharged. Contact us to determine if Chapter 13 is an option for you.