Adoption Assistance Benefits Properly Excluded from CMI

Posted by NCBRC - February 18, 2016

The BAP for the Ninth Circuit found that Adoption Assistance payments are “benefits received under the Social Security Act” and were properly excluded from the debtor’s calculation of current monthly income. Adinolfi v. Meyer (In re Adinolfi), 2016 Bankr. LEXIS 173, No. 15-1091 (B.A.P. 9th Cir. Jan. 19, 2016). 

The bankruptcy court denied confirmation finding that Ms. Adinolfi did not devote all of her projected disposable income to the chapter 13 plan because she excluded her adoption assistance benefits from her calculation of current monthly income. The BAP reversed and remanded.

The Adoption Assistance and Child Welfare Act of 1980 established a program under which families adopting special needs children are entitled to receive financial assistance through the state using funds 50% of which were provided from Title IV-E of the Social Security Act, with the remaining amount funded by the state and county. Ms. Adinolfi received her payments through the Merced County Human Services Agency.

The panel began its analysis with the language of section 101(10A)(B). There was no question that Ms. Adinolfi “received” “benefits.” But were those benefits received “under” the Social Security Act (SSA)? The panel found that the relevant definition of “under,” as “under the control of,” does not include a requirement that the control be exclusive, and indeed, most of the programs falling under the SSA contemplate some state involvement. Therefore, the panel found that the litmus test could not be exclusive federal control. Citing the lack of consensus among other courts that have examined the phrase, the panel found that it was sufficiently ambiguous to look beyond its plain text.

The panel then looked at the types of programs that could be said to fall under the “sprawling” SSA. It broadly categorized them according to levels of federal/state involvement as: 1) federally operated and administered with little state involvement; 2) federal funding of state programs created in accordance with federal requirements; 3) federal reimbursement of state administrative costs but not benefits for programs that qualify; and 4) federal block grants for programs that are enacted and administered by the states. Adoption Assistance is included in the second category. With the definitions of the individual words in mind the court turned to the meaning of the whole phrase, “benefits received under the Social Security Act.” It concluded that, as benefits that are paid by the county “subject to the federal program requirements and standards of 42 U.S.C.A. §§ 670-679c and federal oversight,” Ms. Adinolfi’s Adoption Assistance payments are benefits received under the Social Security Act properly excluded from the calculation of disposable income.

The panel then addressed the trustee’s counterarguments beginning with the contention that the exclusion should apply only to benefits funded and administered solely by the federal government. It rejected this argument finding that Congress was aware of the extensive reach of the SSA, including its many programs involving state contributions of one kind or another, and could have narrowed the exclusion of benefits accordingly had it so chosen.

The panel also rejected the trustee’s argument that BAPCPA’s purpose to force “can pay” debtors to pay, is better served by a narrow interpretation of section 101(10A)(B). While one of the purposes of BAPCPA and the means test was indeed to identify those debtors who can pay their debts, programs like Adoption Assistance are intended to benefit those people with specific needs that take them out of the “can pay” category.

The panel was likewise unpersuaded by those courts that have found that unemployment insurance benefits should not be excluded from the calculation of CMI. The panel found that courts that looked to how unemployment insurance benefits were treated prior to BAPCPA were on the wrong track. Prior to BAPCPA there was no exclusion for social security benefits, therefore, the manner in which any given benefit was treated prior to 2005 is irrelevant. More importantly, the language of the statute, which is the best indication of Congress’s intent, does not support the narrow reading. As the panel pointed out, simply because one of the purposes of BAPCPA was to reel in debtor able to pay debts that does not mean every provision was intended to further only that purpose. Though BAPCPA is “remedial” legislation, the SSA is likewise remedial, intended to remedy the problems of poverty, illness, unemployment, etc. The two purposes are both legitimate and neither cancels out the other.

Nor did the fact that the actual payments made to Ms. Adolfini came from the county remove them from the auspices of the SSA. In adding the social security benefit exclusion to the Code, Congress was aware that many social security benefits go through state or county channels. Where, as here, the federal government’s involvement in the Adoption Assistance program was “extensive” and “intrusive” requiring overall federal approval, periodic reports and audits, there was sufficient federal involvement to place Adoption Assistance under the rubric of social security benefits.

Finally, the panel was unpersuaded by the trustee’s argument that excluding the Adoption Assistance payments under section 101(10A)(B) would render section 1325(b)(2)’s exclusion of foster care payments from disposable income redundant. Rather, the court found the two provisions complementary as foster care payments may, but would not necessarily, come from a social security program, and, in any case, the exclusion in section 101(10A)(B) applies more broadly than section 1325(b)(2), in that the definitional provision applies to chapter 7 as well.

Judge Jury issued a dissenting opinion arguing that the phrase “benefits received under the Social Security Act” is ambiguous and should be interpreted narrowly in accordance with BAPCPA’s underlying purposes of 1) forcing “can pay” debtors to pay, and 2) protecting the debtor’s retirement and educational funds. Judge Jury advocated the position that the layperson’s reading of social security benefits generally limits those benefits to retirement funds. Further, the level of state control over and administration of the adoption assistance program, renders it too far removed from the Social Security Act to be deemed excludable.

Adinolfi 9BAP opinion



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