NACBA Files Amicus on Issue of Social Security Benefits in Chapter 13 Plan

Posted by NCBRC - March 29, 2012

NACBA has filed an amicus brief on the issue of whether debtor’s social security income may be considered by the court when addressing whether debtor’s chapter 13 plan is proposed in good faith and is confirmable over the trustee’s objection. Beaulieu v. Ragos (In re Ragos), No. 11-31046 (5th Cir.).

In its brief, NACBA argues that Congress has clearly removed social security income from the reach of creditors both under the provisions of the Social Security Act as well as the Bankruptcy Code. Section 407 of the Social Security Act provides in part that: “[N]one of the moneys paid or payable . . . under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process or to the operation of any bankruptcy or insolvency law.” 42 U.S.C. § 407(a). The prohibition against seizure of a debtor’s social security income was reinforced in 2005 when Congress enacted BAPCPA. Section 101(10A) defines current monthly income as: “[T]he average monthly income from all sources that the debtor receives . . . but excludes benefits received under the Social Security Act.” Unlike property that enters the estate and then is removed through the mechanism of exemption, under the clear statutory language, social security benefits are excluded from the estate altogether and may not be considered for any purpose.

Addressing the trustee’s objection to confirmation on the basis that the debtor has not applied all of his projected disposable income to the repayment of unsecured creditors, as required by section 1325(b)(1)(B), NACBA argues that the exclusion of social security benefits carries over to that provision. Section 1325(b)(2), defines disposable income with reference to current monthly income which, in turn, excludes social security benefits. Contrary to the trustee’s argument, “projected disposable income” under section 1325(b)(1)(B) cannot be divorced from the definition of disposable income under the other relevant provisions of the Code and the decision in Hamilton v. Lanning, 506 U.S. ___, 130 S.Ct. 2464 (2010), which addressed how to interpret the application of “projected” does not alter the underlying definition of “disposable income.”

Finally, NACBA’s brief argues that because debtors have no obligation to contribute social security benefits to their plans, those benefits may not be considered by the court when conducting a “good faith” analysis under section 1325(a)(3). A good faith analysis permits a court to examine debtor’s actions with respect to his income that are indicative of a desire to unfairly withhold income from creditors. Mere receipt of social security benefits is qualitatively different from the affirmative bad faith acts of a debtor trying to shield disposable income.

Geoff Walsh authored NACBA’s brief.

Ragos NACBA amicus



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