The Ninth Circuit’s Bankruptcy Appellate Panel wrote an opinion that could be interpreted to mean that benefits received under most programs governed by the Social Security Act are not “disposable income” that must be devoted to payment of creditors’ claims in a chapter 13 plan.
One of the panel’s three judges dissented. Both the majority and the dissent based their opinions on the language of Sections 1325(b)(1) and 101(10A)(B). The latter provision defines “current monthly income” to exclude “benefits received under the Social Security Act.”
The majority’s opinion has the effect of allowing a parent to devote adoption benefits for the upbringing of a former foster child and not toward payment of creditors’ claims. In terms of policy, the majority’s opinion is in line with the Seventh Circuit’s decision from April in In re Brooks holding that child support payments ordinarily are excluded from the calculation of disposable income.
For having adopted a child from foster care, the debtor received $1,400 a month in adoption assistance payments under the federal Adoption Assistance and Child Welfare Act of 1980. Half of the funding came from the federal government, 37.5% from the state, and 12.5% from the county. The payments were made by the county social services agency, not by the federal government.
The woman’s chapter 13 plan excluded the adoption assistance payments from the calculation of her “disposable income.” The bankruptcy judge sustained the chapter 13 trustee’s objection to the plan, ruling that it was improper to exclude adoption benefits in calculating current monthly income.
Writing for the majority, Bankruptcy Judge Robert J. Faris of Honolulu said that no court had previously decided whether the Social Security exclusion covers adoption payments. In his Jan. 19 opinion, he said that most, but not all, courts have held that unemployment compensation is not excluded.
Judge Faris’ opinion lays out various categories of programs governed by the Social Security Act with varying percentages of funding from the federal government.
The majority interpreted “benefits received under the Social Security Act” as meaning “benefits received subject to the authority of, and in accordance with, 42 U.S.C. §§ 301-1397mm.” Although adoption benefits are paid by the county government, they are nonetheless “subject to the federal program requirements and standards of 42 U.S.C. §§ 670-679(c) and federal oversight,” according to the majority opinion.
Because adoption benefits are “received under the Social Security Act,” the majority reversed the bankruptcy court and held that they are excluded from the calculation of current monthly income.
Judge Faris admitted that the 2005 amendments “generally made bankruptcy more difficult and expensive for many debtors, but it does not follow that courts must interpret every one of BAPCPA’s provisions in that manner,” he said.
Bankruptcy Judge Meredith A. Jury of Riverside, Calif., dissented.