IN RE:RALPH ALEXANDER STASIAK CASE NO. 95-5167

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

RALPH ALEXANDER STASIAK CASE NO. 95-51671

BETTY LOU STASIAK

DEBTORS

MEMORANDUM OPINION

This case is pending on the objection of the chapter 13 trustee to confirmation of the debtors' chapter 13 plan.

The debtors filed a joint petition for relief under chapter 13 of the Bankruptcy Code on October 6, 1995. According to Schedule I to the petition the husband is a Senior Parts Marketing Representative for Link Belt Construction Equipment Company where he has been employed for 17 years; the wife is a teacher's aid at Morton Middle School. She has been employed in the Fayette County Public Schools for 72 years.

In Schedule F to the petition Link Belt Company is listed as a creditor holding an unsecured claim in the amount of $20,377.39. This debt is identified as a "Loan against 401K." The schedules specify "debtor will pay this loan directly outside the plan through payroll deductions."

Consistent with the foregoing, Part III 2. of the debtors' plan proposes continuation of regular biweekly deductions of $227.44 from the wages of the husband for repayment of the loan from his 401K plan.

Under federal law an employee benefit plan must be established and maintained pursuant to a written instrument which must provide for one or more fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan. 29 U.S.C. 1102. The assets of an employee benefit plan must be held in trust by one or more trustees who in turn shall have exclusive authority and discretion to manage and control the assets of the plan. 29 U.S.C. 1103. The plan is an entity separate and apart from the employer.

In this instance the employer rather than the plan is named as a creditor. The court cannot discern from the record that the plan, the correct name of which should be easily ascertainable, has ever received notice of this chapter 13 proceeding.

Typically an employee participant's vested accrued benefit under a plan is used as security for a loan. Ordinarily no more than 50% of the present value of a participant's vested accrued benefit may be considered by a plan as security for the outstanding balance of all plan loans made to the participant. 29 C.F.R. 2550.408b-1(f).

In practice an employee may borrow up to 50% of his vested accrued interest from a plan and must assign to the plan his remaining vested accrued interest as security for the loan. The assignment gives the plan a right of setoff.

The Bankruptcy Code defines a creditor with a right of setoff as holding a secured claim to the extent of the right of setoff. 11 U.S.C. 506(a).

In this instance the debtors have listed their employer as a creditor holding an unsecured claim and the trustee has objected to repayment of the employer by payroll deduction on the ground that the employer must be dealt with on a parity with other creditors holding unsecured claims.

The problem with all of this is that the employer is not the creditor and the real creditor actually holds a claim that qualifies under the Code for treatment as a secured claim. There is no prohibition in the Code against separate classification of a secured claim.

Some courts have taken the position that a loan of this nature should not be treated as a debt because in effect it is a debt the debtor owes himself. In re Jones, 138 B.R. 536 (Bankr. S.D. Ohio 1991). This court has doubts about the validity of such reasoning. However, that issue is not before the court.

The trustee's objection acknowledges the debt is a claim but alleges it is an unsecured claim which may not be separately classified for purposes of repayment.

In the present state of the record the court finds the trustee's objection to confirmation shall be overruled and the plan shall be confirmed without prejudice to the right of the chapter 13 trustee to seek reconsideration of this matter.

Dated:

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

 

Copies to:

 

Barbara M. Griffin, Esq.

Sidney N. White, Trustee

Greg Pavey, Esq.

Scott T. Rickman, Esq.

U.S. Trustee

j:\opinions\1997\stasiak

 

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

RALPH ALEXANDER STASIAK CASE NO. 95-51671

BETTY LOU STASIAK

 

DEBTORS

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the debtors forthwith amend the schedules to their petition to specify the correct name and address, including the post office box number and telephone number, of the entity administering the husband's 401K plan. Concurrently therewith the debtors shall provide the trustee copies of the instruments executed by them in connection with their outstanding loan or loans to the husband's 401K plan, which, if necessary, they shall obtain from the entity administering the plan.

On the present state of the record the chapter 13 trustee's objection to confirmation of the debtors' plan is overruled, without prejudice to the right of the trustee to seek reconsideration of this matter once the issues are clarified.

Dated:

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

Copies to:

Barbara M. Griffin, Esq.

Sidney N. White, Trustee

Greg Pavey, Esq.

Scott T. Rickman, Esq.

U.S. Trustee