[00:00:00] Speaker 04:
Good morning.

[00:00:01] Speaker 04:
If it please the court, Michael premise on behalf of Jordan Marie Saldana, the appellant and the debtor.

[00:00:07] Speaker 03:
Could you move the mic a little closer?

[00:00:09] Speaker 03:
Thanks.

[00:00:10] Speaker 04:
Let me start over.

[00:00:12] Speaker 04:
Um, have it pleased the court, Michael premise on behalf of the debtor and the appellant, Jordan Marie Saldana.

[00:00:17] Speaker 04:
I would like to reserve three minutes of my time for rebuttal.

[00:00:22] Speaker 04:
Having said that this case raises some issues that are brewing across the country.

[00:00:29] Speaker 04:
but they don't need to be.

[00:00:31] Speaker 04:
This case raises a question of statutory interpretation.

[00:00:35] Speaker 04:
What I'm asking this panel to do is to side with the majority view of courts on this issue, is to adopt the view of the only circuit court, the Sixth Circuit, to look at the issue of interpreting voluntary retirement contributions.

[00:00:52] Speaker 04:
What I'm asking this court to do is to take a look at the official forms.

[00:00:57] Speaker 04:
The official forms for bankruptcy also contemplate

[00:01:00] Speaker 04:
the interpretation that I am urging the court to take as to the hanging paragraph.

[00:01:05] Speaker 04:
That is the official forms.

[00:01:07] Speaker 03:
But those are forms that are promulgated by the judicial conference.

[00:01:12] Speaker 03:
Do you have a case that says that forms promulgated by the conference can be considered in statutory interpretation?

[00:01:21] Speaker 04:
They're not.

[00:01:23] Speaker 04:
I agree with you on that.

[00:01:26] Speaker 04:
Ideally, the forms would reflect the law, and we'd like not to have them be in conflict.

[00:01:31] Speaker 00:
Well, also, this law's been in effect for 20 years.

[00:01:35] Speaker 00:
And it seems like for almost 20 years, courts have disagreed as to whether, in enacting what they call the hanging paragraph, Congress intended to exclude or include post-petition voluntary retirement contributions from the debtor's disposable income.

[00:01:54] Speaker 00:
So Congress could, Congress has had 20 years to say something and knows that we're all suffering from the hanging paragraph and hasn't done anything, so.

[00:02:04] Speaker 04:
Well, unfortunately that's common with Congress and we're left to sort this out.

[00:02:11] Speaker 00:
So why do you think the proper interpretation of the hanging paragraph compels the conclusion that post-petition voluntary retirement contributions are excluded from the debtor's disposable income?

[00:02:23] Speaker 00:
It seems to me that there's a good argument.

[00:02:26] Speaker 00:
I mean, our BAP has said they're not excluded, right?

[00:02:32] Speaker 00:
Correct.

[00:02:33] Speaker 00:
All right.

[00:02:34] Speaker 00:
We just don't have the circuit.

[00:02:36] Speaker 04:
The circuit court has not ruled on this issue.

[00:02:38] Speaker 04:
That is correct.

[00:02:39] Speaker 04:
The BAP.

[00:02:39] Speaker 00:
So we can overrule the BAP if we want, or we can say that the BAP is right.

[00:02:44] Speaker 00:
And then there would be a conflict depending on what.

[00:02:47] Speaker 00:
There could be a conflict with the Sixth Circuit, or it could be the same, right?

[00:02:52] Speaker 04:
Well, the Sixth Circuit has endorsed the debtor deducting voluntary retirement contributions.

[00:02:59] Speaker 04:
So if this panel were to adopt the BAP's take on it, that would be a circuit split with the Sixth Circuit.

[00:03:08] Speaker 00:
But if you sort of think of bankruptcy law, that obviously, this is a Chapter 13, right?

[00:03:16] Speaker 04:
Correct, this is a Chapter 13.

[00:03:17] Speaker 00:
And so if you do a Chapter 13, you get, correct me if I'm wrong, but that the debtor gets to set a schedule for paying off the debts, but it's less than what the debtor owes, and at the end of that period of time, then the debtor's done, right?

[00:03:34] Speaker 04:
That is correct, yeah.

[00:03:35] Speaker 00:
Okay, so if the debtor puts a whole lot of money into

[00:03:43] Speaker 00:
the voluntary contributions to their retirement, that's money that doesn't go to the people that the debtor owes money to, right?

[00:03:52] Speaker 00:
The debtor's already getting a break, and then it can put money, set it aside for him or herself, and then the people the debtor owes money to get even less.

[00:04:05] Speaker 00:
Why would that be a good policy under bankruptcy?

[00:04:09] Speaker 04:
That's the conflict between debtors and creditors is how to sort these things out and what Congress has drawn as a line in terms of a debtor's ability to pay and what would represent disposable income or projected disposable income.

[00:04:26] Speaker 04:
But you're correct.

[00:04:27] Speaker 04:
The more that goes into retirement is the less that would be available to repay other creditors.

[00:04:32] Speaker 04:
But that's the tension of a zero-sum game when there's limited resources.

[00:04:37] Speaker 00:
But I think- And under 13, the debtor's already going to pay less than the debtor owes, right?

[00:04:42] Speaker 04:
Not necessarily.

[00:04:44] Speaker 04:
In many cases, yes.

[00:04:45] Speaker 04:
But the debtor is expected to pay based on their perceived ability to pay, which may be 100% of their debts.

[00:04:52] Speaker 04:
But in many cases, it's not.

[00:04:54] Speaker 01:
So when Congress passed this law in 2005, the BAP CPA, as I understand from the briefing, the consensus was that the voluntary contributions were disposable income.

[00:05:08] Speaker 01:
And your argument in the brief is that presumably Congress wanted to change that and give substantive effect to that change by excluding that, and that's what's reflected in the hanging paragraph, that these voluntary contributions shall not constitute disposable income as defined in Section 1325-B2.

[00:05:32] Speaker 01:
So here's my question.

[00:05:34] Speaker 01:
There's a third theory out there just to complicate matters further from this Johnson bankruptcy decision that takes that language at face value and says, regardless of whether someone was contributing before or after the petition was filed, that's not part of disposable income.

[00:05:52] Speaker 01:
Why isn't that the correct interpretation of this?

[00:05:56] Speaker 04:
To look at this, I don't see in the statute a temporal requirement, a time requirement, a requirement that the debtor have to have been contributing prior to the filing of a bankruptcy.

[00:06:08] Speaker 04:
Although, on the facts of this case, the debtor has been, so this panel wouldn't need to reach that specific issue.

[00:06:14] Speaker 04:
But I don't see any requirement about pre-existing contributions in the statute itself.

[00:06:20] Speaker 04:
I do see the statute

[00:06:22] Speaker 04:
clearly contemplating 1325B2 as Your Honor had referenced, and the intention that this would be limited to Chapter 13 and not to other chapters.

[00:06:34] Speaker 04:
So to address some of the concerns that Your Honor had also raised, would this be something where someone would qualify for Chapter 7 just by virtue of maxing out their retirement contributions?

[00:06:46] Speaker 04:
The answer would be no, that this is limited to Chapter 13.

[00:06:50] Speaker 03:
And the good faith exception, right?

[00:06:53] Speaker 03:
Correct.

[00:06:55] Speaker 03:
If the plan isn't proposed in good faith, and one could say if you're maximizing your post-petitioned contributions, it might not be, then it would not be confirmed, correct?

[00:07:08] Speaker 04:
That's correct.

[00:07:09] Speaker 04:
Good faith is required as an overlapping policy to chapter, well, to all bankruptcies, but chapter 13, as we're discussing here.

[00:07:16] Speaker 03:
What do you make of the trustees' argument that the Internal Revenue Manual has some bearing here because Congress was referencing that perhaps in adopting the amendments and that the manual goes the other direction?

[00:07:34] Speaker 04:
You know, the Internal Revenue Manual is something where this court has addressed it as

[00:07:40] Speaker 04:
a source to consider, but the IRS is not going to write federal law.

[00:07:46] Speaker 04:
The Internal Revenue Man, you know, the IRS is free to change from time to time for their own reasons, but that doesn't rewrite the bankruptcy laws as they were written in 2005 or what we're talking about here.

[00:08:00] Speaker 04:
So I think it can have some, be something we'd take a look at, but it's not going to guide the outcome here.

[00:08:09] Speaker 04:
And I also know that it's routinely disregarded in some court cases or some other matters.

[00:08:17] Speaker 00:
Well, it seems like it's just trying to give, it just isn't easy to interpret this.

[00:08:22] Speaker 00:
Any of the three choices that we have kind of

[00:08:27] Speaker 00:
don't fit neatly into statutory construction.

[00:08:30] Speaker 00:
Congress doesn't want to do anything about it.

[00:08:33] Speaker 00:
So what would get the Supreme Court's attention in this matter?

[00:08:39] Speaker 00:
A split in the circuit?

[00:08:41] Speaker 04:
I think it would, yeah.

[00:08:43] Speaker 00:
That's not the... Well, we have to get the best answer that we can get.

[00:08:48] Speaker 00:
But would you at least concede that this has been causing havoc in bankruptcy courts for some time?

[00:08:56] Speaker 04:
I certainly would concede that, yes.

[00:08:58] Speaker 04:
It's been very problematic and it's been nearly 20 years.

[00:09:01] Speaker 01:
Which of the three is the majority rule?

[00:09:04] Speaker 01:
Maybe it's a split decision, but is there one?

[00:09:08] Speaker 01:
I think the Sixth Circuit in Davis said that the Johnson rule was the one that more courts have adopted, but that may have been some time ago.

[00:09:16] Speaker 01:
Is there any sense of, is there a consensus of any kind?

[00:09:21] Speaker 04:
Yeah, the majority of courts, and the trustee acknowledges this in her brief, would allow voluntary withholdings as a deduction to ability to pay through the means test.

[00:09:33] Speaker 04:
Now, there's a split about whether the withholdings have to have occurred prior to the filing of the bankruptcy or that they could commence after the filing of the bankruptcy.

[00:09:41] Speaker 04:
But again, that's not an issue in this case because the debtor was actually contributing prior to the filing.

[00:09:47] Speaker 04:
But that is the majority view.

[00:09:49] Speaker 04:
And that's also the view taken by the leading treatise, which is call years.

[00:09:53] Speaker 04:
So we've got a lot of authority to support the position that I'm urging this panel to take.

[00:09:58] Speaker 04:
The Sixth Circuit in Davis, the official forms take that position, as well as the leading treatise, call years on bankruptcy, all take the position that these retirement deductions should be allowed at, say, deduction and ability to pay.

[00:10:21] Speaker 04:
I can't address my thought on the hanging paragraph and the truth of the matter I think is that it was inserted hastily.

[00:10:29] Speaker 04:
The fact that it's a hanging paragraph and not part of the statutory hierarchy, it doesn't have a Roman numeral or a letter in front of it speaks to the idea that it was inserted hastily and likely back in 2005 by somebody that knew far less about how this was going to play out than the people that are actually working with it.

[00:10:52] Speaker 03:
I don't think there's much doubt that Congress made a hash of it in 2005.

[00:10:58] Speaker 04:
But here we are.

[00:10:59] Speaker 04:
Well, we agree on that.

[00:11:00] Speaker 04:
I think they got enough hands in the air for it to pass and said, let the courts take it from there.

[00:11:06] Speaker 04:
And here we are taking it from there.

[00:11:08] Speaker 04:
But I do think there's enough here.

[00:11:10] Speaker 03:
But aren't we kind of faced with a situation, at least, the majority of courts seem to favor your approach of the Johnson approach outside the Ninth Circuit.

[00:11:18] Speaker 03:
Correct.

[00:11:19] Speaker 03:
But most of the courts within the Ninth Circuit follow the Prigge approach.

[00:11:23] Speaker 03:
And that's kind of where we are, right?

[00:11:25] Speaker 04:
That is kind of where we are.

[00:11:27] Speaker 04:
Yeah.

[00:11:27] Speaker 04:
That is kind of where we are.

[00:11:28] Speaker 04:
But I do think there's plenty of authority that would allow this panel to adopt the approach that I'm urging.

[00:11:34] Speaker 04:
And I've covered that a couple of times, but I think there's an awful lot of authority.

[00:11:39] Speaker 04:
I don't think we'd want to make the official forms incorrect without taking that step very seriously.

[00:11:44] Speaker 04:
Not that they are law, but they should be taken very seriously lest it confuse pro se litigants and others.

[00:11:51] Speaker 00:
Well, the Sixth Circuit, too, to David's case that you're urging us to follow, also did have a dissent that would be closer to the Priggie approach, too.

[00:12:00] Speaker 00:
It obviously was a 2-1 decision, so it pretty much lays out our choice again there, right?

[00:12:06] Speaker 04:
I agree, yeah.

[00:12:09] Speaker 00:
Do you want to save the balance of your time for rebuttal?

[00:12:12] Speaker 04:
I wanted to do that.

[00:12:13] Speaker 00:
Thank you.

[00:12:13] Speaker 00:
Thank you.

[00:12:30] Speaker 00:
Good morning.

[00:12:30] Speaker 02:
Good morning.

[00:12:32] Speaker 02:
May it please the court.

[00:12:33] Speaker 02:
My name is Brent Meyer, and I represent Martha G. Bruninski, Chapter 13 trustee and appellee in this matter.

[00:12:40] Speaker 02:
This appeal asks a very straightforward question.

[00:12:43] Speaker 02:
Are voluntary contributions to 401k retirement accounts considered in the calculation of current disposable income?

[00:12:51] Speaker 02:
Although this question is straightforward, it is extraordinarily complicated to answer.

[00:12:57] Speaker 02:
Bankruptcies, as this panel has identified, courts across the country have adopted four different approaches to answering this question.

[00:13:04] Speaker 02:
The Sixth Circuit.

[00:13:05] Speaker 00:
But should we do a fifth approach, or what are you saying?

[00:13:09] Speaker 02:
That could be an acceptable option.

[00:13:11] Speaker 02:
I'm just not certain what a fifth approach would be.

[00:13:13] Speaker 03:
I think we could do that.

[00:13:14] Speaker 02:
We could, and that would be an interesting approach of how we take that.

[00:13:19] Speaker 02:
The question becomes, what do we look to, and what has not been discussed in the four different approaches?

[00:13:25] Speaker 03:
If I might cut to the chase a bit.

[00:13:26] Speaker 03:
The problem I have with the Prigge approach is, in terms of statutory interpretation, is that it really makes the amendments in 2005 meaningless.

[00:13:37] Speaker 03:
I don't see any meaning that can be attached to the additional language that would have any substantive effect.

[00:13:45] Speaker 02:
Understood, Your Honor, and I think that you've correctly identified that that is one of, if you take a look at the two

[00:13:52] Speaker 02:
The majority of the cases have indicated that Johnson is the majority view.

[00:13:57] Speaker 02:
However, if we look at it, the Sixth Circuit is the only circuit cases to decide of the issue twice.

[00:14:04] Speaker 02:
They can't have a consistent view there.

[00:14:07] Speaker 02:
The dissent points this out that the majority

[00:14:11] Speaker 03:
Right, I'm kind of ignoring all the surplus right now, I'm just saying.

[00:14:14] Speaker 03:
As a matter of statutory interpretation, which is, you know, that's in front of us now, that's my concern with the Pricky approach is that it means Congress engaged in essentially a meaningless act in adding these words.

[00:14:31] Speaker 03:
So I'm asking you to tell me why I'm wrong.

[00:14:34] Speaker 02:
And I think what we start out with as we look at one of the first cases to decide this in the Ninth Circuit was the lower court of McCullar.

[00:14:40] Speaker 02:
That was Judge Carlson in the Northern District of California.

[00:14:43] Speaker 02:
What he said in there is that the hanging paragraph, it was aimed at a modest aim at only limiting pre-petition contributions from ever being considered as both local.

[00:14:54] Speaker 03:
But they were excluded.

[00:14:55] Speaker 03:
Everybody agreed that pre-petition contributions were excluded from property of this state.

[00:14:59] Speaker 02:
Correct.

[00:15:00] Speaker 03:
But he said that- So why would Congress have to correct that?

[00:15:02] Speaker 03:
Because everybody agreed on it then.

[00:15:05] Speaker 02:
Well, pre-petition contributions, those were not property to the estate.

[00:15:10] Speaker 02:
Correct.

[00:15:11] Speaker 02:
Because if we look at the REZ of the account, that account was never property to the estate.

[00:15:15] Speaker 02:
And we look at 541C2 and Patterson v. Shoemake, we knew that those amounts were not property to the estate.

[00:15:22] Speaker 02:
The question, though, goes is, and this is to answer your question, is if this REZ, this pre-petition REZ that everyone acknowledges is 541C2 excluded,

[00:15:32] Speaker 02:
What happens if you got distributions from that?

[00:15:35] Speaker 02:
Would that ever be considered

[00:15:37] Speaker 02:
current monthly income for purposes of disposable income.

[00:15:41] Speaker 03:
Right, but you're dealing with Chapter 5, and that was just strictly property of the state, but go ahead, please.

[00:15:48] Speaker 02:
Correct, but this is the tension with it being held in Chapter 5, is we look, the first part of 541B7 analyzes what is not property of the state.

[00:15:58] Speaker 02:
It's always assets.

[00:15:59] Speaker 02:
But the hanging paragraph starts with accept that, and it tries to link disposable income.

[00:16:04] Speaker 02:
Well, the tension that we have with this paragraph is we have assets at the first part, and we have an exclusion for income.

[00:16:11] Speaker 02:
So the question is, where could that income ever be considered disposable income?

[00:16:16] Speaker 02:
And the answer to answer your question is, it is addressed potentially to the idea that pre-petition res, or pre-petition amounts in a retirement account, if those are ever distributed to the debtor,

[00:16:30] Speaker 02:
that would be the income that would be excluded under CMI.

[00:16:34] Speaker 02:
CMI is current monthly income is defined in 10110A and 1325B2 adds to that.

[00:16:40] Speaker 02:
There are eight exclusions from current monthly income.

[00:16:43] Speaker 02:
The interpretation that I would argue that is potentially added or identifying as to the exclusion under the hanging paragraph is solely those contributions that a debtor may receive either within the six month period or post-petition

[00:16:59] Speaker 02:
that come out of the residence that we know is not property of the estate.

[00:17:02] Speaker 03:
I don't see any concern that was raised before the 2005 amendments that makes that argument that they were going to be excluded distributions.

[00:17:11] Speaker 03:
I mean, what the people were concerned about was, can you exclude these voluntary payments themselves from disposable income in Chapter 13?

[00:17:24] Speaker 00:
Correct.

[00:17:24] Speaker 03:
Because you would agree that pre-2005,

[00:17:29] Speaker 03:
The so-called Priggie Rule was the majority rule in the courts.

[00:17:36] Speaker 03:
In other words, they were not considered disposable income.

[00:17:43] Speaker 02:
Correct, Your Honor.

[00:17:44] Speaker 02:
But the distinction we have with the 2005 BAP SIPA amendments was that it defined this entire new universe for calculating disposable income, which is the means test, which takes a 1325 B2.

[00:17:56] Speaker 02:
And so to try to analyze pre-BAP SIPA 2005 and say what did the majority say or how would the majority exclude pre-petition versus post-petition, that whole discussion never came into the universe of deciding disposable income.

[00:18:10] Speaker 00:
So what was Congress doing, since we know that the words don't make it clear?

[00:18:14] Speaker 00:
What was Congress doing?

[00:18:16] Speaker 02:
What I believe Congress was doing was simply making the observation that if any amounts in...

[00:18:28] Speaker 02:
If you look at footnote five in Prigg, what Prigg identified was... I think it's Priggy.

[00:18:34] Speaker 02:
Priggy.

[00:18:35] Speaker 02:
I've called it twice.

[00:18:36] Speaker 02:
Either way, I just... It's a Montana case.

[00:18:39] Speaker 02:
Okay.

[00:18:41] Speaker 01:
I've been wondering how to pronounce that all day.

[00:18:45] Speaker 02:
Judge Kirchner, what I believe that he... Kirchner.

[00:18:53] Speaker 02:
541C2, as I previously said, we've always identified that those amounts are never going to be property of the estate.

[00:19:00] Speaker 02:
Well, if you look at 541B7, it narrowly talks about those amounts that are withheld from the employer.

[00:19:08] Speaker 02:
Well, Footnote 5 and Priggy says that we have

[00:19:12] Speaker 02:
amounts that are in the trust account that we know are the debtor's non-property estate, and then we have amounts that are withheld by the employer that have not yet been distributed to the trust.

[00:19:23] Speaker 02:
These two amounts now are not property of the estate.

[00:19:27] Speaker 02:
The accept that language just tried to clarify that those amounts that the employer is holding never would be considered disposable income under any circumstance.

[00:19:37] Speaker 02:
It was just reinforcing the idea that those amounts would never be considered in the disposable income calculation.

[00:19:42] Speaker 03:
But if I understand your argument, the distribution by the employer would occur at retirement, correct?

[00:19:49] Speaker 02:
That's not my understanding.

[00:19:51] Speaker 02:
The employer distribution would be amounts withheld that on the normal cycle would then be remitted to the trust.

[00:20:00] Speaker 02:
Because what happens is the employer takes gross wages.

[00:20:03] Speaker 02:
They deduct certain amounts or the debtor voluntarily contributes certain amounts.

[00:20:08] Speaker 02:
The employer or their payroll processing department holds those amount and at certain intervals will then distribute those amounts to the trust.

[00:20:16] Speaker 02:
To the trust, but not to the debtor.

[00:20:17] Speaker 02:
Not to the debtor under certain circumstances.

[00:20:20] Speaker 03:
Under your logic, how could the debtor ever get that income that would be considered disposable because that would not occur until retirement?

[00:20:29] Speaker 02:
That is answering the question of Prigge of what was Congress trying to do with 541C2 and 541B7.

[00:20:37] Speaker 02:
The other explanation for this, and you'll see this in the dissent in Davis,

[00:20:42] Speaker 02:
is the court identified at least four instances where those amounts could be considered current monthly income, and one of them were distributions.

[00:20:51] Speaker 02:
So if you reject my analysis on the 541C2 and 541B7, then what we're left with is, well, how do these amounts ever become

[00:21:00] Speaker 02:
distributed to the debtor.

[00:21:01] Speaker 02:
Well, that really then takes 541C2 and 541B7 and combines them together.

[00:21:06] Speaker 02:
It just reinforces that all pre-petition amounts are never property of the estate.

[00:21:12] Speaker 02:
Well, we know how the debtor could get distributions from that.

[00:21:15] Speaker 02:
They have early retirement.

[00:21:16] Speaker 02:
They have mandatory distributions from that.

[00:21:18] Speaker 02:
So under that scenario, the dissent in Johnson or in Davis points out that those amounts would then be distributed to the debtor.

[00:21:26] Speaker 02:
And what 541B7 was simply trying to do was add another element to 10110A and 1325B2 and to remove from the calculation of current monthly income those distributions.

[00:21:40] Speaker 02:
Because what is difficult to understand is every court that's addressed this issue

[00:21:46] Speaker 02:
takes this as a deduction or an expense.

[00:21:50] Speaker 02:
But disposable income is a concept of current monthly income and allowed expenses.

[00:21:55] Speaker 02:
It doesn't have to be an expense because when you try to put an expense into this paragraph, it doesn't make sense, right?

[00:22:02] Speaker 02:
Because it's talking about money is withheld.

[00:22:04] Speaker 02:
How is that an expense?

[00:22:05] Speaker 02:
My interpretation would limit the accept that hanging paragraph and say that

[00:22:10] Speaker 02:
if from the REZ, the trust REZ, the debtor ever gets a distribution, that amount is not current monthly income, and therefore that amount is not considered in the disposable income calculation.

[00:22:20] Speaker 02:
That logically gives an explanation for how the hanging paragraph is not dead law, as the Sixth Circuit tried to say when you try to use the

[00:22:29] Speaker 03:
I mean, I think the difficulty, and maybe you can correct me, is that you've raised these scenarios, but I just have never seen it being a big deal in bankruptcy, in Chapter 13 bankruptcy.

[00:22:41] Speaker 03:
What is a big deal is whether the contributions to the employer-managed pension plan

[00:22:48] Speaker 03:
our disposable income or not disposable income.

[00:22:51] Speaker 03:
I mean, courts have, there have been a lot of litigation on that, even pre-2005, but I just, maybe you can correct me, but I just haven't seen much litigation on the issues you're describing that would cause Congress to go, whoa, we need to correct this.

[00:23:07] Speaker 02:
It's theoretical.

[00:23:09] Speaker 02:
I agree, Your Honor, and the interpretation, although

[00:23:12] Speaker 02:
It may not make perfect sense, and it may not take a universe where you go, that was a real problem that Congress needed to address.

[00:23:18] Speaker 02:
But then you look at the flip side of it, and as this court pointed out earlier,

[00:23:23] Speaker 02:
The overwhelming majority of the courts, other than the Ninth Circuit pre-Bapsipa, said that voluntary contributions are part of a disposable income calculation.

[00:23:34] Speaker 02:
So it is very difficult to believe that a paragraph, a hanging paragraph, which all of us agree is poorly written, inartful at best, would that take out

[00:23:47] Speaker 02:
certain contributions to 401k voluntarily, out of the entire equation for disposable income, where we never thought, where Congress never thought that was the answer prior to BAPSIPA.

[00:23:57] Speaker 02:
And that idea is reinforced when you look at the expenses for above median income debtors, we reference 707b.

[00:24:04] Speaker 01:
But in order to accept that reading, you would have to overlook just the plain language of the hanging paragraph and say, it can't possibly have this big effect, even though it says exactly what it says, because why would you hide an elephant in a mouse hole?

[00:24:21] Speaker 01:
So how would you answer that?

[00:24:24] Speaker 02:
Correct.

[00:24:24] Speaker 02:
And so for this court to accept an interpretation consistent with Johnson, you have to eliminate the first four words of the hanging paragraph.

[00:24:33] Speaker 02:
I probably would concede that I would lose if those first four words were not there.

[00:24:37] Speaker 01:
Well, I mean, I guess the Davis majority, I guess, finds a way to say accept that in other instances could mean and also.

[00:24:49] Speaker 01:
I mean, as Judge Callahan said, there is no version of interpreting this statute that hits every mark.

[00:24:57] Speaker 01:
But I guess, in some ways, wouldn't it be better for us to take a look at the part of the language that says, shall not constitute disposable income, except reading so much into accept that?

[00:25:10] Speaker 02:
Well, but it's not just accept that, Your Honor.

[00:25:12] Speaker 02:
It's accept that in such amounts.

[00:25:14] Speaker 02:
Such amount has to refer to something.

[00:25:18] Speaker 02:
If the debtor never contributed pre-petition, that such amount in 541B7 would be meaningless then.

[00:25:26] Speaker 02:
Because Johnson gives the debtor the ability to take those deductions, although they never made them pre-petition.

[00:25:32] Speaker 02:
So that or such amount has to have meaning.

[00:25:35] Speaker 01:
What about higher up on B7 that says property estate does not include any amount withheld and such amount could relate to the any amount?

[00:25:46] Speaker 02:
Okay, but if that any amount is zero, that such amount is also zero.

[00:25:49] Speaker 02:
So under the Johnson approach, the debtor gets the full amount under the applicable plan document, although

[00:25:54] Speaker 02:
So any amount was never withhold, and such amount is also zero.

[00:25:58] Speaker 02:
So if we have zero and we have zero, how would you ever get an amount where the debtor gets the full amount of the plan?

[00:26:03] Speaker 02:
That is the problem with the Johnson logic, is it doesn't statutorily make sense with 541, because such amount has meaning.

[00:26:11] Speaker 02:
As for except that, except that, if you want to take, and the Sixth Circuit in Davis does articulate this as, except that has to mean and.

[00:26:24] Speaker 02:
That strains the English language to have accept that, which tries to understand or make a meaning, and McCullers points this out, that accept that has to counteract or have some other meaning.

[00:26:34] Speaker 02:
Davis the Sixth Circuit would have this mean and.

[00:26:38] Speaker 02:
I think it is incredibly difficult to find that accept that is synonymous with and.

[00:26:43] Speaker 02:
That is a problem.

[00:26:45] Speaker 02:
I've got one minute left, and I would like to make two couple observations here.

[00:26:51] Speaker 02:
With Johnson and Davis, which I'll categorize, they take the three approaches other than the Prigge approach, any amount, such amount, all of the amounts in 541B7, we have to take that amount and we have to boil that amount down into an amount on the means test for which the debtor would be entitled to some exclusion.

[00:27:10] Speaker 02:
As McCullers points out, there's absolutely no mechanism in 541, 1325B, or otherwise, they would take any amount, such amount,

[00:27:20] Speaker 02:
and then transform it into a monthly amount.

[00:27:24] Speaker 02:
If Congress truly intended for the debtor to take under the Davis approach only such amount that they contributed on a monthly basis, it would have said that, or it would have said some meaning which would allow us to extrapolate an amount for which the debtor gets to exclude on a monthly basis.

[00:27:39] Speaker 02:
What we have here, and to answer the court's question that they asked initially is,

[00:27:45] Speaker 02:
In this scenario, what we see here is if the debtor got to contribute $400 or the maximum amount to their retirement account as requested in original means test, it left over approximately $400 a month.

[00:27:57] Speaker 02:
1325B requires a debtor as above median income to contribute that amount for 60 months to general and secured creditors.

[00:28:04] Speaker 02:
That dividend would be an additional $24,000 to general and secured creditors.

[00:28:09] Speaker 02:
We can take this hypothetical to absurd results, but on certain high-income earning individuals, they could have an amount in the thousands of dollars a month that would be excluded.

[00:28:20] Speaker 02:
When you extrapolate that out over 60 months, unsecured creditors would not receive significant in the hundreds of thousands of dollars if this court would allow those deductions for voluntary retirement account, which the statute never contemplated as draft.

[00:28:34] Speaker 01:
You don't think that good faith consideration could protect against gamesmanship of that kind?

[00:28:39] Speaker 02:
I don't believe that good faith would be, because the argument is that it's never bad faith for the debtor to do what the code authorizes.

[00:28:45] Speaker 02:
And if the means test would allow such deduction or non-deduction, then I don't believe that the good faith determination would overrule that outcome.

[00:28:55] Speaker 00:
Thank you for your argument.

[00:28:57] Speaker 02:
Thank you, Your Honor.

[00:29:04] Speaker 04:
Thank you again, Your Honors.

[00:29:06] Speaker 04:
Michael Premis.

[00:29:07] Speaker 04:
Just a brief rebuttal.

[00:29:09] Speaker 04:
I think we should take a big step back and recognize that the Bapsipa Bankruptcy Reform Act was intended to be a complete overhaul of the way things were done and the way ability to pay was determined in bankruptcy.

[00:29:23] Speaker 04:
So when we talk about pre-Bapsipa and the way things were done, this was intended to change things in a radical way.

[00:29:31] Speaker 04:
And by doing it, albeit awkwardly in the hanging paragraph, Congress has

[00:29:35] Speaker 04:
prioritized retirement contributions.

[00:29:39] Speaker 04:
The amicus brief lays out in some detail that retirement savings across this country is dwindling and it's a problem that is coming in our society and has been for decades.

[00:29:50] Speaker 00:
So your policy argument would be basically that Congress wants people to be able to retire and take care of themselves, so that doesn't really defeat the bankruptcy process.

[00:30:03] Speaker 04:
Correct, that I think Congress wants people to be allowed.

[00:30:06] Speaker 00:
Because they figure it's gonna cost them more on the other end if people can't take care of themselves retirement-wise.

[00:30:13] Speaker 04:
I can't say what Congress figures, but that would be one thought process, yes.

[00:30:17] Speaker 03:
I thought the argument was that with the Bankruptcy Abuse Act in 2005, that Congress was trying to encourage people to file Chapter 13s and not 7s.

[00:30:29] Speaker 04:
Well, that was one big-picture idea.

[00:30:32] Speaker 03:
And therefore encouraging, saying, all right, we'll allow you to keep this retirement income, because that'll encourage you to file a 13, because otherwise you file a 7 and nobody gets it.

[00:30:45] Speaker 04:
Correct.

[00:30:46] Speaker 04:
And the hang paragraph expressly references 1325 and the concept of disposable income.

[00:30:52] Speaker 04:
Mr. Meyer had talked quite a bit about property of the estate.

[00:30:57] Speaker 04:
Disposable income is exclusively a post-petition, post-bankruptcy concept.

[00:31:03] Speaker 04:
So I think that the times when there'd be this race of money that's supposed to be going from the employer to the retirement company is a very narrow circumstance that would come up infrequently, if at all, and Congress really wasn't looking at

[00:31:19] Speaker 04:
that as here's this narrow big problem that needs to be addressed it was a bigger picture a complete overhaul that was designed to impact every case not some narrow circumstance that almost never happens so how do you explain the except such amount i think the except such amount is designed to say this is for chapter 13 that

[00:31:44] Speaker 04:
What we're talking about with these retirement contributions would not be a vehicle to qualify for Chapter 7 or used in other chapters.

[00:31:52] Speaker 04:
Now, 541, as Your Honor had pointed out, is part of Chapter 5, which is applicable to all bankruptcies, that what we're trying to do here is narrow this and say this really only applies to Chapter 13.

[00:32:06] Speaker 04:
Does that make sense?

[00:32:08] Speaker 01:
To the best we can.

[00:32:09] Speaker 04:
As much as any of this makes sense, I guess.

[00:32:12] Speaker 04:
Well, thank you.

[00:32:13] Speaker 04:
I think that's the extent of my time.

[00:32:14] Speaker 04:
I appreciate your time, Your Honors.

[00:32:16] Speaker 00:
Well, thank you both, counsel, for your very helpful argument in this case.

[00:32:22] Speaker 00:
And the court truly appreciates it.

[00:32:24] Speaker 00:
And to the students, I'm not sure that you convinced any students that they want to be bankruptcy lawyers at this point in time.

[00:32:31] Speaker 00:
However, in my experience, people that do bankruptcy work really enjoy the work that they do.

[00:32:37] Speaker 00:
And can you both say that?

[00:32:41] Speaker 00:
Absolutely.

[00:32:41] Speaker 00:
All right.

[00:32:42] Speaker 00:
And thank you for assisting the court in this matter.

[00:32:45] Speaker 00:
The matter will stand submitted.