Wednesday, November 6, 2013

How Is Social Security Income Treated in a Chapter 13 Bankruptcy? 

So, you need to file a Chapter 13 bankruptcy.  Your earned income covers your secured payments, such as your mortgage and vehicle payments.   But you also have unearned income in the form of monthly Social Security checks.  So, do you have to include the social security checks as income in the Chapter 13 Plan?

The short answer is NO. 

Social Security income may be used, it does not have to be used in means test or the Chapter 13 Plan.  This means, this is income you can keep. Although it must be disclosed, it is not included in disposable income that must be paid to the Trustee.

If you are interested in a longer analysis of this, you would first look to the good faith test under Code § 1325(a)(3).  This does not require the contribution of Social Security benefits to a Chapter 13 plan. 42 U.S.C. § 407 was passed by Congress to protect Social Security benefits, which have a special status in
this country.
Next, you should look to Section 407, which was meant to be so wide and sweeping that § 407(b) provides that “[n]o other provision of law ... may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section.”

And lastly, we should review the good faith test under § 1325(a)(3); it does not mention section 407, so §1325(a)(3) must not be meant to limit, supersede, or otherwise modify section 407.

Consequently, debtors are not in bad faith merely for doing what the Social Security Act and the Bankruptcy Code allow them to do.

In re: Canniff, --- B.R. ----, 2013 WL 5310178 (Bankr. S.D. Ind. Sept. 19, 2013)

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