|Repayment of Retirement Account Loan Not “Necessary Expense”|
Appeals court affirmed that a debtor who filed for Chapter 7 bankruptcy would have to convert his filing to Chapter 13 as he engaged in abuse of the means test. The bankrupt could not deduct as a necessary expense the payments he was making to his retirement account to repay a loan he took from that account.
Chapter 7; Abuse; Deductions; Retirement Fund Loan
|C A S E S U M M A R Y|
Egebjerg filed a voluntary Chapter 7 bankruptcy petition on December 31, 2006. He earned a gross income of $6,115.56 per month; was single and had no assets. He had unsecured consumer debt of $31,000. Two years before, he had taken a loan from his retirement plan. The plan automatically deducted $734 from his paycheck each month to repay the loan, which was scheduled to be repaid in September 2008. According to Egebjerg’s schedule of necessary expenses, which included the retirement fund repayment, he was left with a monthly disposable income of $15. The trustee moved to dismiss the Chapter 7 petition, arguing that the retirement fund repayment was not a necessary expense. With that subtracted from his expenses, Egebjerg’s filing was an abuse of the means test. The bankruptcy court agreed and ordered Egebjerg to convert his filing to Chapter 13. Under that, he could pay unsecured creditors $525 a month and could make smaller payments toward repaying his retirement fund. Egebjerg appealed.
Affirmed. Payments made on a loan from a debtor’s retirement account cannot be deducted in performing a Chapter 7 means test. Such payments may not be classified as “other necessary expenses” and deducted from income. Contrary to Egebjerg’s position, such payments do not fall under “special circumstances” that rebut the presumption of abuse. The Chapter 7 filing will be converted to Chapter 13.
Egebjerg v. Anderson, ---F.3d--- (2009 WL 2357706, 9th Cir., 2009)
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