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Social Security benefits are not disposable income that must be disclosed in a Chapter 13 petition, according to a Fifth Circuit Court of Appeals decision on Monday.
The New Orleans-based appellate court rejected a trustee's challenge to a Chapter 13 plan this week, finding that a debtor is not statutorily-required to include Social Security income (SSI) in his projected disposable income calculation.
Benjamin and Stella Ragos voluntarily filed a joint Chapter 13 bankruptcy petition in 2011. On schedule I (Current Income of Individual Debtors), they itemized their monthly income, including a $200 portion of their monthly Social Security benefits.
The Ragoses' actual monthly receipt of Social Security benefits totals $1,854. Pursuant to a Chapter 13 reorganization, they filed a proposed payment plan. Under the terms of the plan, creditors would receive all of the couple's declared monthly net income. However, the couple would retain the undeclared balance of their Social Security benefits, $1,654 each month.
S.J. Beaulieu, Jr., the Chapter 13 Trustee, objected to confirmation of the Ragoses' plan because they did not dedicate all of their SSI to the plan for payment to creditors.
Although the term "projected disposable income" is not defined in 11 U.S.C. § 1325(b)(1), it incorporates the term "disposable income," which is defined and which expressly excludes SSI. The Fifth Circuit noted:
The term "disposable income" means current monthly income received by the debtor ... less amounts reasonably necessary for certain enumerated expenses. "Current monthly income," in turn, is elsewhere defined as the average of "all sources" of the debtor's monthly income during the previous six-month period. Importantly, the statutory definition of "current monthly income" explicitly "excludes benefits received under the Social Security Act."
Because including SSI in projected disposable income would violate both the Bankruptcy Code and the Social Security Act, the Fifth Circuit held that Social Security benefits are not included in a debtor's projected disposable income.
The appellate courts have been resistant to trustees' demands for petitioners to disclose Social Security benefits as disposable income. Last week, the Tenth Circuit Court of Appeals also ruled that SSI is not disposable income.