Several U.S. Circuit Courts of Appeals have recently upheld the protection of Social Security benefits, reaffirming those benefits cannot be included as projected disposable income. U.S. Code SSR 73-22c: Section 207 (42 U.S.C. § 407) protects against levy, attachment or other legal process against someone’s benefits. However, lately there have been more cases where trustees have tried to incorporate those funds into bankruptcy settlements. Both the bankruptcy courts and the appeals courts have been consistent with rejecting those settlements.
Thomson Reuters News & Insights recently reported about a case from the 10th U.S. Circuit Court of Appeals. In a Chapter 13 bankruptcy case filed in March 2010, the petitioner didn’t include his SSI benefits for his monthly income or his disposable income. He did include a portion of the income as projected income in his plan to pay back creditors. But the trustee rejected the plan, insisting all the benefit should have been calculated into the plan and the bankruptcy court rejected the plan. The petitioner filed another plan, under protest, which included all the SSI funds. The court accepted that plan, but the case was eventually dismissed for non-compliance when it was determined that the petitioner made payments according to his original plan, not the one accepted by the court.
The petitioner then appealed to the District Court, which reversed the decision and ruled Social Security income does not need to be included in the “projected” disposable income calculation. The trustee then filed an appeal with the 10th Circuit, who upheld the District Court’s ruling. In its ruling, the Court said, “The mere placement of the adjective ‘projected’ in front of the words ‘disposable income’ does not imbue the term ‘disposable income’ with different substantive components.”
A week later, the 5th U.S. Circuit Court of Appeals also ruled that Social Security benefits are not disposable benefits. According to a report in Findlaw, a trustee rejected the proposed plan of a couple who had filed for Chapter 13 because they only included $200 of the $1854 they received each month from Social Security on their declared income list. In their proposed plan, creditors would receive all their declared income, leaving the couple with $1654 each month, the balance of their benefit. The trustee wanted them to declare their entire Social Security check. The appellate court rejected the trustee’s challenge, finding that a debtor is not statutorily-required to include Social Security income in his projected disposable income calculation.
Bankruptcy protection can be a complicated and confusing process. If you are collecting Social Securtiy benefits and are considering filing, contact a qualified Arizona bankruptcy attorney to ensure that your rights are protected.