The trustee asserted that it was certain that debtor would receive more than $87,000 in SSI over the life his plan, and argued that above median income debtors should not be allowed to shield such surplus income from the repayment of their unsecured debts. The trustee said his arguments were supported by the Supreme Court’s ruling in Hamilton v. Lanning (2010) and mandated by Section 1324(a)(3)’s good faith requirements.

The 10th Circuit Court of Appeals agreed with the debtor! “Moreover, nothing in Lanning suggest a court may disregard the Code’s definition of disposable income in calculating income,” the court said. “To the contrary, Lanning made clear a debtor’s disposable income is not only the starting point in calculating projected disposable income, but in most cases it is determinative.” The 10th Circuit found additional support for its conclusion in the Social Security Act, which shields payments made pursuant to the Act from “execution, levy, attachment, garnishment, or other legal process” or from “the operation of any bankruptcy or insolvency law.” For debtors who are not yet receiving SSI, let not your heart be troubled. You won’t have to make this hard decision of including or excluding SSI from your disposable income calculation because by the time you retire, social security will no longer exist because it is bankrupt.

Further, on the issue of bad faith, the court also disagreed. “When a Chapter 13 debtor calculates his repayment plan payments exactly as the Bankruptcy Code and the Social Security Act allow him to, and thereby excludes SSI, that exclusion cannot constitute a lack of good faith,” the court said. “A contrary holding would render the Code’s express exclusion of SSI from the calculation of the debtor’s disposable income, and thereby, its exclusion of SSI from the calculation of the debtor’s projected disposable income, meaningless.”

This issue is still undecided in many courts.

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 five 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.