HHR Attorneys Pen Two-Part Series for the American Bankruptcy Institute Exploring the True History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Carl Mills, Karen Chau and Hilary McDonnell penned a two-part series for the Journal of the American Bankruptcy Institute that explores the true history of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act’s (BAPCPA) exclusion of certain retirement amounts from bankruptcy estates.

“[C]ourts have had difficulty interpreting the hanging paragraph [in 11 U.S.C. § 541(b)(7)] in consumer bankruptcy cases – in particular, determining whether consumer debtors can exclude retirement contributions from disposable income,” the authors wrote in Part One.

Part Two discusses the four competing views from the courts of how retirement contributions should be treated under the hanging paragraph:  

1) To allow debtors to exclude all retirement contributions from disposable income.
2) To allow debtors to exclude voluntary retirement contributions from disposable income up to certain amounts.
3) To allow debtors to exclude an amount equal to the average of their monthly contributions during the six months prior to filing.
4) To treat voluntary retirement contributions as disposable income. 

The authors then propose a new interpretation of the hanging paragraph that is consistent with BAPCPA’s plain language, congressional intent, and sound bankruptcy and retirement policy.

“The legislative history of BAPCPA’s precursor bills strongly indicates that Congress only intended the hanging paragraph to allow consumer debtors to exclude mandatory retirement contributions from disposable income,” the authors conclude. “That interpretation is supported by the lack of any indication that Congress sought to upend the status quo that consumer debtors could not exclude voluntary retirement contributions from disposable income.”

To read, Part One is available here, and Part Two is available here.