A Georgia bankruptcy judge, disagreeing with a colleague, insulated Social Security income from the prying eyes of creditors in chapter 13.
Bankruptcy Judge W. Homer Drake, Jr. presided over a case in Newman, Ga., where the debtor’s monthly income included about $2,000 in Social Security benefits. The debtor filed a chapter 13 plan under which she proposed to save $900 each month from her Social Security benefits for “unforeseen expenses.”
The chapter 13 trustee objected to confirmation, contending that the plan was not filed in good faith because she would be saving more than $30,000 over the life of the plan while paying unsecured creditors only $8,000, or about 20% of their claims.
Judge Drake denied the objection in his April 26 opinion. For him, the issue was a simple case of statutory interpretation.
Although the Eleventh Circuit has not decided the issue, Judge Drake cited four other courts of appeals that reached the conclusion that “Social Security income does not need to be paid into a chapter 13 plan” because Social Security benefits are excluded from “current monthly income” under Section 101(10A)(A).
Admitting that reported decisions were contrary to his position, the trustee argued that the plan was not filed in good faith because the debtor had not disclosed what she intended to do with the savings. Judge Drake rejected the argument because the Bankruptcy Code shows “a clear intent to protect Social Security income from the bankruptcy process.” As a result, he said, the “debtor need not disclose the disposition of Social Security income he does not intend to use toward his plan.”
The trustee had yet another argument, based on a decision by a different Georgia bankruptcy judge who held that saving Social Security income while paying nothing to unsecured creditors can show bad faith sufficient to bar confirmation.
The Ninth Circuit, Judge Drake said, held to the contrary, just like several other courts. Although he said the “optics of the situation are not pleasant” and the plan “raised a specter of unfairness,” Judge Drake held that “retaining Social Security income is not sufficient to show a lack of good faith” because “that is the way the Code is written.”
In other words, Judge Drake said, “it is not ‘bad faith for [the debtor] to adhere to the provisions of the Bankruptcy Code and, in doing so, obtain a benefit provided by it.’”
A Georgia bankruptcy judge, disagreeing with a colleague, insulated Social Security income from the prying eyes of creditors in chapter 13.