Adoption Assistance Payments Excluded from Current Monthly Income

Posted by NCBRC - August 28, 2019

The debtors’ Adoption Assistance payments were “benefits received under the Social Security Act” and were therefore excluded from the calculation of their current monthly income. In re Isaacs, No. 18-1651 (Bankr. M.D. Pa. Aug. 26, 2019).

The above-median debtors proposed a 21% plan and the trustee objected to confirmation on the basis that they were not paying all their projected disposable income into the plan as required under section 1325(b)(1)(B). The dispute centered around the nature of the $2,325/month in benefits the debtors received under the Adoption Assistance and Child Welfare Act of 1980 (the Act). The debtors maintained that those benefits should be excluded from the calculation of current monthly income because they were benefits received under the Social Security Act (SSA). The Act was established under Title IV-E of the Social Security Act (SSA), under which the federal government created a fund to provide benefits to the states to assist families adopting special needs children. The monthly benefits the debtors received were not entirely made up of federal funds, however, but were comprised of 51.82% federal funding, 38.54% state funding, and 9.64% county funding. The trustee argued that the funds were not social security benefits under the definition found at section 101(10A)(B) of the Bankruptcy Code.

Section 1325(b)(1)(B) provides that a court may not confirm a plan proposed by above-median debtors over the objection of the trustee unless the plan provides that all of the debtor’s projected disposable income be applied to the plan. Projected disposable income is found by calculating current monthly income minus expenses. Section 101(10A)(B), which defines current monthly income, specifically excludes from that calculation “benefits received under the Social Security Act.”

In its analysis, the court was persuaded by the reasoning in In re Adinolfi, 543 B.R. 612 (B.A.P. 9th Cir. 2016), where that court focused on the word “under” as used in section 101(10A)(B), finding that it meant “subject to the authority, control, guidance, or instruction of.” The Adinolfi court found that even though the adoption benefits were paid by the county government, they were subject to the oversight of the federal government and therefore fell under the definition of benefits under the SSA. The Isaacs court agreed, finding further that section 101(10A)(B) does not demand that the benefits be under the “exclusive” control of the social security administration to qualify as benefits under the SSA. The court explained that many programs generated by the SSA were operated as joint programs with the states, and it credited Congress with being aware of the various ways social security programs operate. The fact that Congress used broad language in the exclusion from the calculation of current monthly income, led the court to conclude that Congress chose not to limit the exclusion to programs operated solely by the federal government. Therefore, it was not contrary to congressional intent to include the adoption assistance program under the definition of benefits received under the SSA.

The court overruled the trustee’s objection to confirmation.


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