In a case of first impression, Bankruptcy Judge Rebecca B. Connelly of Harrisonburg, Va., held that state and federal benefits received in caring for a couple’s disabled adult son were not “disposable income” and thus were not earmarked for payment of creditors’ claims in a chapter 13 plan.
At their home, the couple cared for their severely disabled 22-year-old autistic son, who was wheelchair bound. The couple received monthly “Medicare waiver benefits” that allowed the couple to care for their son at home. Otherwise, he would have been in a hospital or nursing home at greater expense to the government.
The chapter 13 trustee objected to the couple’s chapter 13 plan, contending they were not devoting all of their “projected disposable income” to payment of unsecured creditors’ claims. Judge Connelly disagreed and confirmed the plan in her opinion on Sept. 6.
The case turned on Section 101(10A)(B), which defines “current monthly income” to exclude “benefits received under the Social Security Act.” In turn, income is part of the calculation of “disposable income” under Section 1325(b)(1)(B) to determine how much chapter 13 debtors must pay under a plan.
The trustee argued that the benefits did not qualify because some were provided by the state. In addition, the trustee contended that the benefits should not have been omitted from the calculation because they were paid by a private agency under contract with the state.
Disagreeing with the trustee, Judge Connelly followed a split decision from January by the Ninth Circuit Bankruptcy Appellate Panel in a case named Adinolfi v. Meyer (In re Adinolfi). That case held that foster care payments are excluded from “currently monthly income” by Section 101(10A)(B). For ABI’s discussion of Adinolfi, click here.
Judge Connelly declined to adopt a narrow reading of “benefits received under the Social Security Act.” It did not matter, in her opinion, that some of the money came from the state or that the state rather than the Social Security Administration distributed the funds.
She also held that the benefits qualified as “foster care payments” similarly excluded from “disposable income” under Section 1325(b)(2). To reach that conclusion, Judge Connelly relied on the Internal Revenue Service, which said in a notice that there are “no substantive differences between birth and foster parents who personally care for disabled adult children in their own homes.”
The majority opinion in Adinolfi and Judge Connelly’s decision are in line with the Seventh Circuit’s decision from April 2015 in In re Brooks, holding that child support payments ordinarily are excluded from the calculation of disposable income. The cases are trending in the direction of holding that benefits received under most programs governed by the Social Security Act are not “disposable income,” regardless of how they are administered or by whom.