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While bankruptcy rates continue to decline, there are still plenty of people filing for bankruptcy. And many of those seeking bankruptcy protection are senior citizens.
Seniors filing for bankruptcy raise a unique question: Should Social Security Income be included in the petitioner's disposable income calculation? According to the Tenth Circuit Court of Appeals, it doesn't have to be.
Fred Fausett Cranmer filed a Chapter 13 repayment plan. In connection with the petition, Cranmer filed a Form 22C (Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income). As allowed by 11 U.S.C. § 101(10A)(B), Cranmer did not include his Social Security Income (SSI) on Form 22C.
Cranmer also filed Bankruptcy Schedules I & J. On Schedule I, which represents his monthly income, Cranmer included $1940 of SSI. On Schedule J, which represents his monthly expenses, Cranmer deducted a portion of that SSI as "exempt social security funds." The Chapter 13 repayment plan Cranmer ultimately proposed, therefore, allowed him to retain a portion of his SSI rather than commit it to the repayment of creditors.
The bankruptcy trustee objected on that basis.
The bankruptcy court denied confirmation of Cranmer's plan, concluding, that SSI must be included in the projected disposable income calculation, and Cranmer's failure to do so meant he did not propose his plan in good faith. Cranmer appealed and the district court issued a memorandum decision reversing the bankruptcy court.
Wednesday, the Tenth Circuit Court of Appeals affirmed the district court. The appellate court noted that SSI need not be included in the calculation of projected disposable income, and Cranmer's failure to include it was not grounds for finding he did not propose his plan in good faith.
The appellate court noted:
Although the term "projected disposable income" is not defined, it incorporates the term "disposable income," which is defined and which expressly excludes SSI. 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 ... Thus, the plain language of the Bankruptcy Code demonstrates SSI is excluded from the projected disposable income calculation.
Here, the court reasoned that it simply was not bad faith for Cranmer to adhere to the provisions of the Bankruptcy Code and, in doing so, obtain a benefit provided by it.