CHAPTER 13 BANKRUPTCY: SOCIAL SECURITY BENEFITS NOT CONSIDERED "INCOME" FOR DEBTOR:

In Re Ragos, No. 11-31046, 5th Cir (2012)

Friday, November 16, 2012, Columbia, Howard County, Maryland.

This blog is presented as a public service by the national general practice law firm of Charles Jerome Ware, P.A., Attorneys and Counsellors.  The firm is headquartered in Columbia, Howard County, Maryland, and its motto is: "Still working.  Still committed.  Still here to make a difference."

Decision: Social security benefits are not included in the projected disposable income calculation, and therefore are not required to be disclosed in a Chapter 13 bankruptcy petition.

Chapter 13 of the Bankruptcy Code provides bankruptcy protection to individuals with regular income whose debts fall within statutory limits. Unlike bankruptcy debtors who file under Chapter 7 and must liquidate their assets, Chapter 13 debtors are permitted to keep their property subject to a court-approved plan under which they agree to pay creditors out of their future income.

Benjamin and Stella Ragos (“Debtors”) voluntarily filed a joint Chapter 13 bankruptcy petition on February 22, 2011. On schedule I (Current Income of Individual Debtors), Debtors itemized their monthly income, including a $200.00 portion of their monthly social security benefits. Debtors' actual monthly receipt of social security benefits totals $1,854.00.

Pursuant to a Chapter 13 reorganization, the Debtors filed a proposed payment plan. Under the terms of the plan, creditors would receive all of Debtors' declared monthly net income. However, the Debtors would retain the undeclared balance of their social security benefits, $1,654.00 each month.

S.J. Beaulieu, Jr., the Chapter 13 Trustee (“Trustee”), objected to confirmation of the Debtors' plan because Debtors did not dedicate 100% of their social security income to the plan for payment to creditors. Trustee additionally argued that Debtors' willful failure to commit their social security income to the repayment of creditors indicated that their plan had not been proposed in good faith.

After a hearing, the bankruptcy judge rejected both of Trustee's arguments. The bankruptcy court based its ruling primarily on the language of provisions of both the Bankruptcy Code and the Social Security Act, reflecting a congressional intent to exclude social security benefits in calculating projected disposable income. The bankruptcy court's order was certified for appeal under 28 U.S.C. § 158(d)(2) and the New Orleans-based 5th Circuit U.S. Court of Appeals granted the motion for appeal of the order.

This same issue involving social security benefits is also before the 4th Circuit and is slowly making its way to the 6th Circuit which includes Michigan.

[In the Matter of: Benjamin Ragos; Stella Cannon Ragos (Debtors); S.J. Beaulieu, Jr. (Appelant) v. Benjamin Ragos and Stella Cannon Ragos (Appellees), No. 11-31046, U.S. Court of Appeals for the Fifth Circuit (November 12, 2012); U.S. Fifth Circuit, blogs.findlaw.com/fifth-circuit/2012-12-11/ Social Security Benefits Aren't Disposable Income]