Failure to Report SS Award Results in Dismissal

Posted by NCBRC - February 19, 2014

A debtor must report a new award of social security benefits during the course of her chapter 13 plan without regard to whether that income can be used to fund the plan. In re Wheeler, No. 09-13597 (Bankr. N.D. Ind. Dec. 18, 2013). The debtor completed her 36 month chapter 13 plan and was poised for discharge when the trustee moved for dismissal under section 1307(c) on the grounds that the debtor had failed to report a change in income during the life of the plan in violation of her duty to disclose under section 521(f)(4). During the course of her bankruptcy, the debtor sought and obtained a disability award from the Social Security Administration. She received $38,749 in disability during one year of her chapter 13 plan. The trustee discovered the omission when she sought dismissal for debtor’s failure to submit her tax return for the year in which the award was received.

The court rejected the debtor’s argument that because social security benefits are not considered part of current monthly income under section 101(10A)(B), disclosure of her disability benefits would not have had any impact on the estate or on her plan. The court began with the general principle that the duty to disclose assets is not contingent upon those assets ultimately being valuable to the estate. On that basis alone, the debtor should have disclosed the Disability award. Furthermore, the court found, although several appellate courts have found that a debtor may not be compelled to contribute social security benefits to a chapter 13 plan, the Seventh Circuit has not yet been confronted with the issue. Ranta v. Gorman (In re Ranta), No. 12-2017, 2013 WL 3286252 (4th Cir. July 1, 2013); In re Welsh, 711 F.3d 1120 (9th Cir. 2013) (noting that the statute clearly excludes Social Security income); In re Ragos, 700 F.3d 220, 223 (5th Cir. 2012); In re Cranmer, 697 F.3d 1314, 1317-18 (10th Cir. 2012); Baud v. Carroll, 634 F.3d 327, 347 (6th Cir. 2011). Though the court did not express an opinion on the issue, it admonished the debtor that failure to report the award to the trustee prevented confrontation of the issue should the trustee have decided to take it on.

The court granted the trustee’s motion to dismiss.

Wheeler opinion

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One Comment

  • Posted August 14, 2016 at 12:09 am | Permalink

    Good article about Social Security awards and that they must be reported during Ch 13.
    Darren Chaker

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