In re Neil SOLOMON, M.D., Debtor. Neil SOLOMON, Plaintiff-Appellant, v. Ellen W. COSBY, Chapter 13 Trustee; Jane Coe; Mary Doe; Jane Roe; John Roe, Defendants-Appellees. In re Neil SOLOMON, M.D., Debtor. Neil SOLOMON, Plaintiff-Appellee, v. Ellen W. COSBY, Chapter 13 Trustee, Defendant-Appellant, v. Jane COE; Mary Doe; Jane Roe; John Roe, Defendants-Appellees, 67 F.3d 1128

Reversed and remanded by published opinion. Judge WILKINSON wrote the majority opinion, in which Judge WIDENER joined. Judge MICHAEL wrote a dissenting opinion. OPINION WILKINSON, Circuit Judge: This ease presents the question whether a

Chapter 13 debtor must include in his “disposable income” some portion of funds invested in various individual retirement accounts (“IRAs”). The bankruptcy court denied confirmation of the debtor’s proposed

Chapter 13 plan for failure to include hypothetical distributions from the IRAs in the disposable income to be paid under the plan. Because we believe that funds held in the debtor’s IRAs but not distributed to the debtor do not constitute “disposable income” under 11 U.S.C. § 1325, we reverse. I. The debtor herein, Neil Solomon, M.D., filed a

Chapter 13 bankruptcy petition on September 20, 1993; he filed his proposed

Chapter 13 plan shortly thereafter. Dr. Solomon’s only creditors are three former patients (and the spouse of one) who have sued him in tort for alleged sexual misconduct during the course of their treatment as his medical patients. The plaintiffs claimed compensatory and punitive damages totaling approximately $160 million. Solomon scheduled each plaintiffs claim as contingent, un-liquidated, and disputed and listed the amount of each claim as zero. Although these debts were arguably non-dischargeable under

Chapter 7 since they arose from “willful and malicious injury by the debtor,” 11 U.S.C. § 523(a)(6), the claims could be discharged under the broader “super-discharge” available to

Chapter 13 debtors. 11 U.S.C. § 1328(a). Solomon scheduled assets valued at $2,184,645, of which he claimed $2,140,501.25 to be exempt from the claims of his creditors. Of the assets claimed exempt, $1,413,888 is held in three individual retirement accounts. Federal law does not require that income be withdrawn from these accounts until the recipient reaches age 70½. See 26 U.S.C. § 408(a)(6); 26 C.F.R. § 1.408-2(b)(6). Solomon, currently age 62, informed the bankruptcy court that he had no intention of withdrawing any funds from the IRAs during the term of the plan.

Moreover, under Maryland law, the IRAs are exempt from execution by creditors. Md.Cts. & Jud.Proc.Code Ann. § 11-504(h). Solomon was thus left with approximately $40,000 in non-exempt assets. After his petition was filed, Solomon voluntarily surrendered his medical license and ceased practicing medicine. As a result, his net monthly income decreased substantially from the $14,800 initially disclosed in

Schedule I to approximately $2,650, which consisted primarily of monthly mandatory distributions from his Maryland state pension. According to the plan, Solomon proposed to pay the Trustee $750 per month for an extended term of five years, 11 U.S.C. § 1322(d), for a total payout to the creditors of $45,000. Solomon planned to use the remainder of his monthly income, together with income from investments and exempt assets other than his IRAs, to pay his normal living expenses. In February 1994, the

Chapter 13 Trustee and the creditors filed various objections to the proposed plan. Only the treatment of Solomon’s three IRAs is relevant to this appeal. According to the Trustee, the IRAs should have been taken into account in determining the minimum amount Solomon should be required to pay under his

Chapter 13 plan. See 11 U.S.C. § 1325(b)(1)(B) (upon objection by trustee or unsecured creditor, when plan proposes less than full payment of unsecured claims, debtor must devote all his projected disposable income for typical three-year term to payments under the plan). The Trustee also objected to the plan on the ground that it did not satisfy the “good faith” requirement of § 1325(a)(3), but the bankruptcy court declined to address this fact-dependent issue, preferring to decide questions such as the disposable income requirement that could be resolved as a matter of law.

The bankruptcy court agreed with the Trustee and denied confirmation on the ground that Solomon’s plan failed to provide for payment of all his projected disposable income when it failed to include some minimum amount attributable to allowed distributions from his IRAs. Under applicable non-bankruptcy law, the bankruptcy court noted, Solomon has the right to receive periodic distributions from these accounts without suffering a tax “penalty,” despite his stated intention not to take such distributions. On appeal, the district court affirmed.

Solomon appeals, and the Trustee cross-appeals, arguing that confirmation should be denied since the plan was not filed in good faith. II. A. The Trustee objected to confirmation of Solomon’s

Chapter 13 plan on the ground that the plan did not meet the “disposable income” requirement of § 1325(

b) since it failed to include hypothetical withdrawals from the IRAs in the calculation of Solomon’s monthly income. We hold, however, that the funds invested in Solomon’s IRAs are not “disposable income” within the meaning of § 1325(b)(2). The statute defines “disposable income” as “income which is received by the debtor and which is not reasonably necessary to be expended ... for the maintenance or support of the debtor or a dependent of the debtor.” 11 U.S.C. § 1325(b)(2). If the trustee or the holder of an allowed unsecured claim objects to the confirmation of a

Chapter 13 plan and the plan proposes less than full payment of unsecured claims, the plan may be confirmed only if it provides for payment of “all of the debtor’s projected disposable income” to be received during the life of the plan. 11 U.S.C. § 1325(b)(1)(B). Solomon’s IRAs are not “income” under the clear terms of this section. Both the statutory definition of “disposable income” as income that is received by the debtor as well as the requirement that projected income must be calculated over the life of the plan contemplate income that a debtor is actually receiving at the time of confirmation.

Projected disposable income typically is calculated by multiplying a debtor’s monthly income at the time of confirmation by 36 months, the normal duration of a

Chapter 13 plan, then determining the portion of that income which is “disposable” according to the statutory definition. See Anderson v. Satterlee (In re Anderson), 21 F.3d 355, 357 (9th Cir.1994). It is undisputed that, at the time of the confirmation hearing on Solomon’s plan, he was not actually receiving any disbursements from his IRAs; he further insisted that he had no intention of withdrawing funds from the IRAs during the life of the plan.

On these facts, we cannot sanction the bankruptcy court’s inclusion of some hypothetical amount of income from the IRAs in the calculation of disposable income. “[Rjather than engaging in hopeless speculation about the future,” a court should determine projected disposable income by calculating a debtor’s “present monthly income and expenditures” and extending those amounts over the life of the plan. In re Crompton, 73 B.R. 800, 808 (Bankr.E.D.Pa.1987).

Solomon’s present, regular monthly income does not include distributions from his IRAs, and the bankruptcy court’s imputation of amounts from such speculative distributions in its calculation of disposable income is contrary to the plain terms of the statutory definition. Cases such as In re Schnabel, 153 B.R. 809 (Bankr.N.D.Ill.1993), and In re Hagel, 171 B.R. 686 (Bankr.D.Mont.1994), are distinguishable: they involved debtors who, at the time the bankruptcy petition was filed, were receiving regular monthly pension or social security payments. Schnabel, 153 B.R. at 812; Hagel, 171 B.R. at 687 & n. 3.

In this case, by contrast, Solomon receives no regular distributions from his IRAs, has indicated no intent to take such distributions during the life of the

Chapter 13 plan, and is not required to do so by the Internal Revenue Code until he reaches age 70)i See 26 U.S.C. § 408(a)(6); 26 C.F.R. § 1.408-2(b)(6). Schnabel and Hagel thus do not require that these accounts be treated as a source of hypothetical income regularly received by Solomon. B. Although they are not a source of regular, periodic income, Solomon’s IRAs are assets of the estate, much like a checking or savings account. See Education Assistance Corp. v. Zellner, 827 F.2d 1222, 1226 (8th Cir.1987) ($6,000 lump-sum payment from retirement fund, which

Chapter 13 debtor transferred into IRA, was asset of the estate rather than disposable income); see also Official Bankr. Form 6,

Schedule B (Personal Property) (listing “[¡Interests in IRA, ERISA, Keogh, or other pension or profit sharing plans” as personal property of the debtor); Official Bankr. Form 6,

Summary of Schedules (debtor’s real and personal property constitute assets of the estate). In fact, Solomon listed each of his IRAs as personal property in the schedules submitted to the bankruptcy court. In this regard, the IRAs are relevant not to the “disposable income” requirement, but rather to the “best interests of creditors” prerequisite for confirmation of a

Chapter 13 plan. See 11 U.S.C. § 1325(a)(4) (unsecured creditor's must receive no less in a

Chapter 13 proceeding than they would in a

Chapter 7 liquidation proceeding). Here, the debtor’s IRAs would be “exempt” assets and thus unavailable to creditors in a

Chapter 7 liquidation. Maryland has elected to opt out of the federal exemptions, see 11 U.S.C. § 522(b); Md.Cts. & Jud.Proc.Code Ann. § ll-504(g), and instead has established specific exemptions under state law. Solomon relies on one of these state-law exemptions, Md.Cts. & Jud.

Proc.Code Ann. § ll-504(h), which provides, in relevant part, that “any money or other assets payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan qualified under ... § 408 ... of the United States Internal Revenue Code ... shall be exempt from any and all claims of the creditors of the beneficiary or participant....” Solomon’s IRAs are qualified under 26 U.S.C. § 408(

a) and hence fall within the terms of the .Maryland exemption. Because the IRAs would be unavailable to creditors in a

Chapter 7 proceeding by virtue of the state law exemption, creditors would receive nothing from those accounts if Solomon’s non-exempt assets were to be liquidated. Thus, preserving the IRAs from the claims of Solomon’s creditors in this

Chapter 13 proceeding is both logically sound and in- keeping with the Code. In fact, in a

Chapter 7 proceeding, Solomon’s creditors would be entitled to the proceeds from liquidation of non-exempt assets worth approximately $40,000. The $45,000 he proposes to pay the creditors under his

Chapter 13 plan thus appears to satisfy the “best interests of creditors” prerequisite for confirmation. The Supreme Court has emphasized that the mere happenstance of bankruptcy should not result in a windfall to creditors. Patterson v. Shumate, 504 U.S. 753, 764, 112 S.Ct. 2242, 2249-50, 119 L.Ed.2d 519 (1992). Nor, we think, should a debtor’s choice to proceed under

Chapter 13 invariably entitle creditors to more than they would receive in

Chapter 7, contrary to the mandate of the Bankruptcy Code. Our holding today is consistent with the treatment accorded IRAs by the Internal Revenue Code. Subject to certain limitations, a taxpayer’s contribution to an IRA is tax deductible, and the account accrues interest tax-free. 26 U.S.C. §§ 219, 408(e); In re Chiz, 142 B.R. 592, 592-93 (Bankr.D.Mass.1992). As a general matter, only when the account holder takes a distribution from the account is the payment subject to tax. 26 U.S.C. § 408(d).

Moreover, a taxpayer need not take a distribution until he reaches age 70}i 26 U.S.C. § 408(a)(6); 26 C.F.R. § 1.408-2(b)(6).

In light of these provisions, we do not believe that the funds held in the accounts but not distributed to Solomon constitute “income” as that term is commonly understood. “Income is not a gain accruing to capital or a growth in the value of the investment, but is a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and coming in, being derived, that is, received or drawn by the recipient for his separate use, benefit, and disposal.” Black’s Law Dictionary 687 (5th ed. 1979).

See also 26 U.S.C. § 408(d)(1) (subject to certain exceptions, “any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee”) (emphasis added). In sum, we do not think it a condition of invoking the protections of

Chapter 13 that one withdraw pension or retirement income to fund a plan that otherwise meets the § 1325 prerequisites for confirmation. A contrary holding could have devastating results for pension and retirement savings. By requiring an otherwise eligible

Chapter 13 debtor to withdraw such monies to fund a

Chapter 13 plan, we would effectively undercut the very purpose of retirement and pension plans: to ensure that workers have sufficient funds with which to support themselves and their dependents during their retirement years. We agree with the Third Circuit that “Congress has expressed a deep and continuing interest in the preservation of pension plans, and in encouraging retirement savings, as reflected in the statutes which have given us ERISA, Keogh plans and IRAs,” Velis v. Kardanis, 949 F.2d 78, 82 (3d Cir.1991). We decline to undercut this clear congressional purpose by conditioning the availability of

Chapter 13 relief on a debtor’s agreement to withdraw funds from an IRA prior to the distribution date mandated by the Internal Revenue Code and its accompanying regulations. III. Our holding does not mean, however, that Solomon is entitled to invoke the protections of

Chapter 13. Whether his

Chapter 13 plan will be confirmed hinges upon a finding by the bankruptcy court on remand that the debtor has proposed this plan in good faith. See 11 U.S.C. § 1325(a)(3) (plan may be confirmed only if “proposed in good faith and not by any means forbidden by law”). In Neufeld v. Freeman, 794 F.2d 149 (4th Cir.1986), this court addressed the elements that inform the good faith determination.

This totality-of-the-circumstances inquiry focuses on such factors as the percentage of proposed repayment to creditors, the debtor’s financial situation, the period of time over which creditors will be paid, the debtor’s employment history and prospects, the nature and amount of unsecured claims, the debtor’s past bankruptcy filings, the debtor’s honesty in representing the facts of the case, the nature of the debtor’s pre-petition conduct that gave rise to the debts, whether the debts would be dischargeable in a

Chapter 7 proceeding, and any other unusual or exceptional problems the debtor faces. Id. at 152 (citing Deans v. O’Donnell, 692 F.2d 968, 972 (4th Cir.1982)). On remand, the bankruptcy court should consider relevant factors in its § 1325(a)(3) analysis of Solomon’s plan, mindful of the fact that the good faith inquiry is intended to prevent abuse of the provisions, purpose, or spirit of

Chapter 13. Neufeld, 794 F.2d at 152. It is here that the concerns of our dissenting brother are addressed. The dissent vents its understandable displeasure with the nature of the acts of which Solomon stands accused. It fashions on appeal a “Solomon Rule” which, however attractive in the particular case, would thwart the general intent of Congress to safeguard pension and retirement plans. The better approach is to require triers of fact in bankruptcy cases to review the good faith with which individual debtors attempt to invoke

Chapter 13 protections. This good faith inquiry is expressly mandated under § 1325(a)(3) of the Bankruptcy Code and has been expressly held by this circuit to encompass “both prepetition conduct and prior bankruptcy filings by the debtor.” Neufeld, 794 F.2d at 150. Having the trier of fact determine whether Solomon failed to exercise good faith is preferable to reworking the law of

Chapter 13 based on the circumstances of a single debtor. Our dissenting brother would do just that, howev-er — in reaching the distasteful situation here, the dissent would compel debtors to prematurely withdraw and make available pension savings which they had no intention of using during the life of a

Chapter 13 plan. IV. For the foregoing reasons, the judgment of the district court is reversed and the case is remanded for further proceedings. REVERSED AND REMANDED. Solomon apparently paid all his other creditors in full before filing his

Chapter 13 petition.