Although it never passes through the debtor’s hands, medical and dental insurance premiums paid by an employer must be included in a chapter 13 debtor’s current monthly income, according to Bankruptcy Judge Noah H. Hillen of Boise, Idaho.
The chapter 13 debtor scheduled her current monthly income at about $4,100, yielding annual income of almost $50,000. In Idaho, median family income for a one-person household is some $55,000.
In her income calculation, the debtor did not include $625 paid each month by her employer in premiums for dental and medical insurance. The chapter 13 trustee objected to confirmation of the debtor’s plan because the premiums were not included in monthly income.
In his November 4 opinion, Judge Gillen sustained the objection. As a result, the debtor was classified as an above-median income debtor and was kicked into a 60-month chapter 13 plan.
The debtor contended that the premiums should not be included in income because they were not paid to her and were not available to pay creditors. The argument did not prevail.
Judge Hillen parsed the statute to find the answer, beginning with Section (10A), which defines current monthly income as “the average monthly income from all sources that the debtor receives . . . without regard to whether such income is taxable income . . . and includes any amount paid by an entity other than the debtor on a regular basis for the household expenses of the debtor.” He cited the Ninth Circuit for saying that all sources of income are included unless specifically excluded under Section 101(10A)(b)(ii).
Income specifically excluded in Section 101(10A)(b)(ii) includes Social Security benefits, payment to victims of terrorism and payments from the pandemic national emergency.
Judge Hillen explained that the inclusion or exclusion of various forms of income from “current monthly income” can affect the determination of “reasonable expenses,” whether the debtor is above or below median income and whether the plan must be 60 months rather than 36.
Payments from third parties, Judge Hillen said, are included in income only if they are made “regularly” and are applied toward “household expenses.” He cited bankruptcy courts in Colorado and Oregon for including medical insurance paid by a third party in monthly income.
Judge Hillen said that including employer-paid health and dental premiums in income “comports with the purposes of the Code” because they “increase the debtor’s monthly income.” The argument that the debtor did not receive the payments was “without merit,” he said.
Because the payments “offset household expenses,” Judge Hillen required inclusion of the employer-paid premiums in monthly income. He sustained the trustee’s objection to confirmation and required the debtor to classify herself as above median income.
Observations
Because millions of Americans have no health insurance, should employer-paid insurance be considered income for everyone?
In cases like the one before Judge Hillen, courts might consider whether the debtor would have purchased or would have been able to purchase health insurance were it not provided by the employer. Millions of Americans have no health insurance because they cannot afford it or elect to have no insurance and instead use their meager incomes on other expenses like food, housing and transportation.
Under the Affordable Care Act, many Americans can purchase health insurance with varying degrees of subsidy from the government. If the debtor in Judge Hillen’s case did not have employer-provided health insurance, the court might have inquired what it would have cost the debtor to purchase health care insurance through the ACA. Perhaps the subsidized cost could have been considered income rather than the premiums paid by the employer.
In chapter 13 cases filed by low-income debtors, courts might determine whether the debtor’s income and living expenses would have allowed the debtor to purchase health care insurance. If the debtor’s circumstances would not have left discretionary income to purchase health insurance, perhaps employer-provided insurance should not be considered income in those cases.
Although it never passes through the debtor’s hands, medical and dental insurance premiums paid by an employer must be included in a chapter 13 debtor’s current monthly income, according to Bankruptcy Judge Noah H. Hillen of Boise, Idaho.
The chapter 13 debtor scheduled her current monthly income at about $4,100, yielding annual income of almost $50,000. In Idaho, median family income for a one-person household is some $55,000.
In her income calculation, the debtor did not include $625 paid each month by her employer in premiums for dental and medical insurance. The chapter 13 trustee objected to confirmation of the debtor’s plan because the premiums were not included in monthly income.
In his November 4 opinion, Judge Gillen sustained the objection. As a result, the debtor was classified as an above-median income debtor and was kicked into a 60-month chapter 13 plan.