Paying Unsecured Debt

• When you and your creditors put together a repayment plan for your debts, the plan does not necessarily need to pay off your unsecured debts as long as all of your disposable income is used over the repayment period. The unsecured creditors also must be repaid--at least as much as they would have been repaid if you had filled for Chapter 7 bankruptcy.
  
  

General Rule

• You can continue making contributions to your 401k plan at the same amount or percentage you were contributing prior to filing for Chapter 13 bankruptcy. However, increasing your contribution would not be allowed because it would decrease your disposable income. This would violate the conditions of your repayment plan. You unsecured creditors would be able to ask for a greater repayment of their debts.
  
  

Court Differences

• Individual bankruptcy courts have the ability to set local rules that can disallow 401k contributions or include 401k loan repayments. They can also set conditions on being able to include those contributions or repayments. For example, the Middle District of the Florida Bankruptcy Court has a rule that doesn't count 401k contributions or 401k loan repayments in a debtor's disposable income, without regard to whether the debtor's income is above or below the state median.
  
  

401k Loans

• If you borrow from your 401k and are making repayments when you file for bankruptcy, you generally will have to commit the amount of that monthly payment to repaying your other debts once your 401k loan is paid back. This is called a step plan. In the past, debtors have wanted to use the payment as a 401k contribution, but the courts have ruled this would be a roundabout way to increase your 401k contributions.