Plan Loans Repayments Count for Bankruptcy Repayment

February 12, 2007 ( - A University of Toledo employee who took a loan from her profit-sharing retirement plan account before filing for U.S. Bankruptcy Court liquidation must consider her loan repayments in her ability to repay her debts, a judge has ruled.

U.S. Bankruptcy Court Judge Mary Ann Whipple of the U.S. Bankruptcy Court for the Northern District of Ohio ruled that because Tamara Clark’s Chapter 7 bankruptcy case was filed before the effective date of a 2005 bankruptcy reform law, her loan payments must be considered as disposable income usable to repay her debts.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) mandated that money required to repay Employee Retirement Income Security Act (ERISA)-qualified loans is no longer considered disposable income in determining amounts required to be applied to unsecured debts.

According to the court, Clark’s Bankruptcy Court application listed   total monthly expenses of $2,511, which included $1,219 as a monthly payment for “Retirement Loans” from the University of Toledo Alternative Retirement Plan.

Because of the timing ofClark’s court filing, Whipple ruled, the $1,219.23 monthly payment used to repay her loan should be applied to towards payment of her unsecured creditors. Whipple noted that the U.S. Bankruptcy Trustee assigned to Clark’s case estimated that applying the retirement loan payments to her unsecured debt would result in the debts being paid off in about 32 months. The court also cited prevailing case law from the 6 th US Circuit Court of Appeals.

Whipple granted the trustee’s request to dismissClark’s bankruptcy case.The case is In re Clark,   Bankr. N.D. Ohio, No. 05-73673, 1/29/07.