A Wisconsin judge allowed Chapter 7 debtors to contribute to retirement savings in the face of a means test challenge claiming savings was an abuse of the bankruptcy system.
Hurray! Another in the small band of those touting savings.
In the Mravik case, the debtor’s Chapter 7 means test, which does not provide for retirement savings as an allowable deduction, said that their case was presumed to be an abuse. The trustee sought dismissal of the case.
No, the judge held. We are not required to dismissed every case that is presumptively abusive.
Congress indicated its support for retirement savings by making them an allowable expense in Chapter 13, he went on. [Someone should tell me why the expense isn’t allowable in Chapter 7, but then, I know how BAPCPA was drafted and by whom.]
In the bankruptcy world before the means test, debtors were expected to pay to creditors in a Chapter 13 every penny over their budgeted expenses. I railed at that on the grounds that 1) life isn’t like that; the unexpected does happen; and 2) the Chapter 13 experience should be building good habits for life after bankruptcy. Spending every penny that comes in the door is not the path to financial rehabilitation.
So, I’m exceedingly pleased to see the tide turning, even a small bit, here.
Image courtesy of SeniorLiving.org