In re Pizzo

IN RE: Marlena Joy Pizzo, Debtor(s).

Case Number: 20-01758-hb

U.S. BANKRUPTCY COURT District of South Carolina

May 20, 2021

ORDER OVERRULING OBJECTION TO CONFIRMATION

The relief set forth on the following pages, for a total of 8 pages including this page, is hereby ORDERED.

/s/_________

Chief US Bankruptcy Judge

District of South Carolina

Chapter 13

ORDER OVERRULING OBJECTION TO CONFIRMATION

THIS MATTER is before the Court to consider confirmation of the plan filed by Debtor Marlena Joy Pizzo.¹ Objections were filed by Creditor Renee S. Siegan² and Gretchen D. Holland, Chapter 13 Trustee,³ to which Pizzo filed Responses.⁴ A hearing was held on May 6, 2021. Pizzo, her counsel, F. Lee O'Steen, and the Trustee attended in-person and, by agreement of the parties, Siegan participated by telephone. Pizzo testified, supplementing her testimony from a prior confirmation hearing.⁵

The Trustee's Objection was resolved at the hearing requiring Pizzo to pay more to the Trustee for distribution to creditors.⁶ Siegan's Objection remains and asserts Pizzo should not be allowed to make voluntary contributions to her retirement plan during the pendency of this case.⁷ At the conclusion of the hearing, the Court granted Siegan leave to file a memorandum in support of her Objection.⁸ After consideration of the evidence and testimony, the parties' arguments andpleadings, and applicable law, the Court enters the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52(a)(1),⁹ overruling Siegan's Objection.

FINDINGS OF FACT

The facts surrounding Siegan's loan to Pizzo, the parties' relationship, and Pizzo's financial circumstances are provided in detail in the Court's Order Denying Confirmation and are adopted herein.¹⁰ Pizzo's Chapter 13 plan proposes monthly payments of $900.00 for 7 months, $850.00 for 4 months, and $1,350.00 for 49 months. However, pursuant to the settlement with the Trustee, Pizzo has agreed to make monthly payments of $900.00 for 7 months, $850.00 for 4 months, $1,645.00 for 19 months, and $1,915.00 for 30 months, resulting in total plan payments to the Trustee of $98,405.00, an increase of $22,555.00. Siegan is an unsecured creditor who, under the proposed plan, will receive a distribution of less than 100% of her $44,000.00 claim. Including Siegan's claim, the filed general unsecured claims total amount is approximately $109,000.00.¹¹ The only secured claim paid through the plan is to Capital One Auto Finance for its $23,969.27 claim secured by Pizzo's vehicle, which will be paid in the monthly amount of $457.00 or more toward.

Pizzo is 36 years-old whose annual income is above the median family income in South Carolina for her household size. She makes monthly voluntary contributions to her retirement plan of $471.53, which is the amount needed to receive the maximum matching contribution from her employer. The current balance of her retirement account is $38,000.00, and she has been making these contributions since her employment began more than three years ago. Siegan's remaining, relevant objection asserts Pizzo's plan was not filed in good faith because Pizzo is not dedicatingall of her disposable income toward the plan payments and should not be allowed to continue her voluntary retirement contributions to the detriment of her creditors. Siegan requests Pizzo's plan payments increase prospectively from this point to include the $471.53 monthly retirement contribution, resulting in an increase of approximately $23,000.00 in total plan payments to the Trustee.

DISCUSSION AND CONCLUSIONS OF LAW

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (L) and this Court may enter a final order.

The filing of a bankruptcy petition creates a bankruptcy estate comprised of the debtor's legal and equitable interests in property unless excluded by statute. 11 U.S.C. § 541(a). Under Chapter 13, the bankruptcy estate also includes the debtor's property and earnings acquired "after the commencement of the case but before the case is closed, dismissed, or converted." 11 U.S.C. § 1306(a)(1) & (2). Section 1325(b) requires 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. 11 U.S.C. § 1325(b)(1)(B). For above-median debtors, disposable income is measured by the means test contained in §§ 1325(b)(2) and (3), and 707(b). Section 707(b) refers to the debtor's "current monthly income," which is defined by the Code as "the average monthly income from all sources that the debtor receives" during the six months preceding the filing, with certain exclusions and adjustments not relevant here. 11 U.S.C. § 101(10A).

Neither § 1325 nor § 707 explicitly authorizes retirement contributions as an allowable expense in calculating disposable income. In re Whitt, 616 B.R. 323, 326 (Bankr. S.D. Miss. 2020)(citing Miner v. Johns (In re Miner), 589 B.R. 51, 56 (W.D. La. 2018)). Rather, § 541(b)(7) of the Code set forth the following exceptions to property of the estate:

(7) any amount -

(A) withheld by an employer from the wages of employees for payment as contributions -

(i) to -

(I) an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986;

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or

(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;

except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325(b)(2); or

(ii) to a health insurance plan regulated by State law whether or not subject to such title; or

(B) received by an employer from employees for payment as contributions

(i) to -

(I) an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986;

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or

(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;

except that such amount under this subparagraph shall not constitute disposable income, as defined in section 1325(b)(2); or

(ii) to a health insurance plan regulated by State law whether or not subject to such title[.]

11 U.S.C. § 541(b)(7) (emphasis added).

The "except that" portions of § 541(b)(7) are known as the "hanging paragraph" and have been the subject of extensive debate, resulting in three main competing views described in detailby the Fourth Circuit in Gorman v. Cantu (In re Cantu), 713 F. App'x 200, 202 (4th Cir. 2017). The majority approach, which has been adopted by at least one court within the Fourth Circuit, finds that § 541(b)(7) allows Chapter 13 debtors to deduct post-petition voluntary retirement contributions from disposable income, subject to a showing of good faith. See In re Cantu, 553 B.R. 565, 575 (Bankr. E.D. Va. 2016) (adopting Baxter v. Johnson (In re Johnson), 346 B.R. 256 (Bankr. S.D. Ga. 2006) "for the simple reason that Section 541(b)(7) does not limit the debtor's ability to make contributions post-petition, nor is there any distinction between pre-petition contributions and post-petition contributions in the statute. There is nothing in the text of Section 541(b)(7) from which the Court can conclude that Congress intended any such distinctions. Indeed, the use of the term 'any amount,' without limitation, followed by the term 'contributions' compels the conclusion that Congress meant no such distinction." (citing 11 U.S.C. § 541(b)(7)).

Siegan asks the Court to adopt the dissenting opinion of Circuit Judge Readler in Davis v. Helbling (In re Davis), 960 F.3d 346 (6th Cir. 2020), which urged for the minority approach that precludes debtors from excluding any voluntary post-petition retirement contributions, even if the debtor was making contributions pre-petition. Id. at 358. The Court declines to do so and instead joins the majority and other courts within the Fourth Circuit that have held post-petition voluntary retirement contributions are not considered disposable income, so long as such contributions are made in good faith. See Cantu, 553 B.R. at 575; see also In re Whitt, 616 B.R. 323, 330 (Bankr. S.D. Miss. 2020) (adopting majority position that post-petition retirement contributions are not considered disposable income, reasoning that the unambiguous language of § 541(b)(7) "excludes funds already contained within a retirement account at the time of the filing the petition from the bankruptcy estate" and the language of the "hanging paragraph" added under BAPCPA demonstrates Congress' intent to exclude retirement contributions from available disposableincome under § 1325(b) (citations omitted)). Therefore, Pizzo's monthly retirement contributions are excluded from her disposable income under §§ 541(b)(7) and 1325(b) subject to the Court finding Pizzo meets the good faith requirement for confirmation.

Good faith is an independent requirement for confirmation of a Chapter 13 plan. 11 U.S.C. § 1325(a)(3). In determining whether a plan has been proposed in good faith, courts in the Fourth Circuit examine the totality of the circumstances. Deans v. O'Donnell (In re Deans), 692 F.2d 968, 972 (4th Cir. 1982). The "'court's discretion in making the good faith determination is necessarily a broad one' and should be based on an examination of the totality of the circumstances on a case by case basis." In re Martellini, 482 B.R. 537, 542 (Bankr. D.S.C. 2012) (quoting Deans, 692 F.2d at 972). "As part of the good faith analysis, the...