Social Security

The Catch 22 of considering social security income for a chapter 7 abuse analysis while excluding its use in a chapter 13 plan was recently addressed by a bankruptcy court in the Central District of California. In In re Suttice, No. 12-21006 (Bankr. C.D. Cal. Jan. 9, 2013), the debtors were an 85 year old husband and 69 year old wife, both with significant medical concerns. The bulk of their income consisted of social security benefits, pension and retirement accounts, and Veterans Benefits with a small amount coming from family contributions. Their combined income minus expenses left them with a monthly surplus of $896.94. The trustee sought to dismiss their chapter 7 bankruptcy on the basis that the totality of the circumstances indicated abuse of bankruptcy under section 707(b)(3)(B). Specifically, the trustee sought to have the debtors’ social security income considered in their ability to pay. [Read more…] about Social Security May Not Be Considered in 707(b)(3)(B) Totality of Circumstances Test

In an important victory for debtors, the Tenth Circuit today found that social security income is not included in the calculation of projected disposable income and that its exclusion cannot support a finding of bad faith. Anderson v. Cranmer (In re Cranmer), No. 12-4002 (10th Cir. Oct. 24, 2012). [Read more…] about Social Security Income Not Included in Projected Disposable Income

NACBA has once again taken arms against a threat to debtors’ social security benefits by filing an amicus brief in the case of In re Ranta, No. 12-2017 (4th Cir.). The bankruptcy court denied confirmation of the debtor’s plan upon objection by the trustee that the debtor had failed to dedicate his social security income to the plan. The district court affirmed.

This holding cannot be reconciled with Congress’s clear intent to protect social security benefits from creditors as evidenced by provisions included in both the Social Security Act and the Bankruptcy Code. Section 101(10A) of the Code defines “income” as excluding social security benefits. That definition directs the interpretation of section 1325(b) which provides that a plan shall not be confirmed over objection unless it includes all of the debtor’s projected disposable income. Section 1325(b)(2) defines “disposable income” in terms of current monthly income which is, in turn defined by section 101(10A) to exclude social security benefits. That these provisions in the Bankruptcy Code protect social security benefits from the reach of creditors is reinforced by the complementary provision of the Social Security Act, section 407(a), which provides that social security benefits are not subject to the operation of bankruptcy or insolvency laws.

Finally, because debtors are statutorily relieved from having to contribute their social security benefits to their chapter 13 plans, it cannot be bad faith to do just that.

Thanks to Geoff Walsh for writing NACBA’s brief.

Ranta NACBA amicus

On June 12, 2012, NACBA filed an amicus brief on the issue of whether social security income should be excluded from the calculation of projected disposable income and whether the existence of social security benefits is an appropriate factor to be considered in a good faith analysis under 1325(a)(3). Anderson v. Cranmer, No. 12-4002 (10th Cir.). The brief outlines the explicit statutory protections for social security benefits in both the Social Security Act and the Bankruptcy Code and emphasizes the historical protection afforded to retirement benefits in general. From a practical standpoint the brief discusses the negative ramifications of permitting a trustee to distribute the debtor’s social security income which would discourage debtors from filing a chapter 13 plan when they could, alternatively, file under chapter 7. Finally, NACBA argues that because the Code permits exclusion of social security benefits from the calculation of disposable income, a debtor’s failure to include that income in the plan can never be the basis for a finding that the plan is not proposed in good faith.

NACBA has filed an amicus brief on the issue of whether debtor’s social security income may be considered by the court when addressing whether debtor’s chapter 13 plan is proposed in good faith and is confirmable over the trustee’s objection. Beaulieu v. Ragos (In re Ragos), No. 11-31046 (5th Cir.). [Read more…] about NACBA Files Amicus on Issue of Social Security Benefits in Chapter 13 Plan