SOCIAL SECURITY BENEFITS .............

SOCIAL SECURITY BENEFITS NOT PART OF DISPOSABLE INCOME IN CHAPTER 13 BANKRUPTCIES

In a Chapter 13 bankruptcy, the amount of plan payment is the amount of disposable income of the debtor arrived at after calculating income and expense using the means test. Therefore, if debtor has monthly net income of $5,000 and monthly deductible expenses of $4,700 allowed by the means test, the disposable income and plan payment is $300 for 60 months if debtor is over median, and 36 months if debtor is below median household income in the state of residency. The question being asked is whether or not social security benefits are considered as part of disposable income in a chapter 13 case. For instance, if debtor still works and receives net income of $2,000 monthly but also receives social security of $1,000 while his monthly deductible expenses is $1,800, is his monthly disposable income $200 or is it $1,200? As you can readily see, social security benefits could make a big difference in the amount of plan payment if it is part of disposable income. If social security is part of disposable income, the monthly plan payment in chapter 13 would be $1,200; otherwise, it would only be $200. What do you think?

Section 101(10A) of the bankruptcy code states that “The term ‘current income’ means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regards to whether such income is taxable income, derived during the 6-month period…(B) includes any amount paid by any entity other than the debtor… on a regular basis for the household expenses of the debtor or the debtor’s dependents… but EXCLUDES benefits received under the Social Security Act…”. Moreover, Section 522(d)(10)(A) of the bankruptcy code states that debtor’s right to receive social security benefit, unemployment compensation, or a local public assistance benefit, veteran’s or disability or unemployment benefit is EXEMPT and not part of the bankruptcy estate.

This was Ms. Miller’s problem in her case. Ms. Miller’s was a chapter 13 debtor whose income consisted of social security benefits of $588 monthly. Her spouse who did not join her in filing chapter 13 received $1,545 in social security benefits and $2,823 in VA disability benefits each month. Her husband lived in a nursing home at no cost to the household. The husband’s social security benefit payments were issued in his name and deposited into the couple’s joint account. The debtor reported monthly household income of $4,956 and expenses of $2,568, leaving her with monthly net income of $2,388 per month. She was current with her mortgage payments, her only secured debt. She had no priority debt owed to the IRS and about $87,000 of credit card debt. Her chapter 13 plan proposed payments of $255 per month for 36 months which paid 6% of her credit card debt. Note that she arrived at her plan payment of $255 by excluding her social security benefits as well as her Husband’s social security benefits from her disposable income of $2,388. The trustee objected to the confirmation of her chapter 13 plan arguing that the husband’s social security income was not exempt and was available to pay creditors because husband did not join debtor in filing for chapter 13.

The bankruptcy court overruled the trustee’s objection saying that, “The language of Section 101(10A) states that “benefits received under the Social Security Act are excluded from current monthly income. Section 101(10A) does not specify that those benefits must be payable to the debtor, as the language in Section 522 indicates. The different language qualifying the scope of the sections leads to the conclusion that Congress intended differing treatment for Social Security benefits in the context of calculating a debtor’s current monthly income than Social Security benefits in the context of a debtor’s exemptions. The Court finds that based on the plain language of Section 101(10A) and Section 522(d)(10)(A), it was Congress’ intent to EXCLUDE social security benefits from the calculation of current monthly income…”

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than four thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.