Nov. 19 (Westlaw Journals) – Chapter 13 debtors who file bankruptcy petitions in courts governed by the 10th U.S. Circuit Court of Appeals do not have to include Social Security Income when calculating their “projected” disposable income.
In re Cranmer, No. 12-4002, 2012 WL 5235365 (10th Cir. Oct. 24, 2012).
The Denver-based federal appeals court held in an apparent case of first impression that merely adding the term “projected” to the phrase “disposable income,” does not alter the Bankruptcy Code’s express exclusion of SSI from the calculation of disposable income.
Fred F. Cranmer filed a Chapter 13 petition in March 2010 in U.S. Bankruptcy Court for the District of Utah.
The 10th Circuit governs U.S. Bankruptcy Courts in the state, as well as federal courts in Colorado, Kansas, New Mexico, Oklahoma and Wyoming.
Cranmer did not include SSI on forms reflecting his current monthly income and disposable income.
SSI does not have to be included on those forms under 11 U.S.C. § 101(10A)(B), the 10th Circuit’s opinion said.
But when he calculated his “projected” monthly income, he included $1,940 of monthly SSI and deducted another portion of the income as exempt.
The Chapter 13 trustee objected to confirmation of Cranmer’s proposed plan, which would have allowed him to retain a portion of his SSI rather than turn it over to creditors.
According to the trustee, Cranmer is set to receive over $87,000 in SSI payments over the duration of his plan, the opinion said.
The trustee conceded that SSI does not have to be included in the calculation of current monthly income. He argued, instead, that the income is not excluded from the calculation of “projected” disposable income.
The Bankruptcy Court declined to confirm Cranmer’s plan, finding the Social Security income had to be factored into the calculation of “projected” disposable income. The court further held that, because Cranmer had failed to include the payments, his plan had not been proposed in good faith.
Cranmer filed an amended plan under protest that included all of the Social Security income.
The Bankruptcy Court confirmed the plan in September 2010, but Cranmer’s case subsequently was dismissed for noncompliance when he made payments to creditors based on the plan he originally had proposed, the opinion said.
On appeal by Cranmer, the District Court reversed. It found that Social Security income does not need to be included in the “projected” disposable income calculation.
The trustee then turned to the 10th Circuit, but found no relief.
The appeals court said the Bankruptcy Code expressly allows debtors to exclude Social Security income from the calculation of their current disposable income. Conversely, the term “projected disposable income” is not defined by the Code.
The panel disagreed with the trustee that the calculation of “projected” disposable income is somehow different.
“The mere placement of the adjective ‘projected’ in front of the words ‘disposable income’ does not imbue the term ‘disposable income’ with different substantive components,” the appeals court said.
The panel found support for its decision from 42 U.S.C. § 407(a) of the Social Security Act, which the court said shields payments from “execution, levy, attachment, garnishment, or other legal process,” or from “the operation of any bankruptcy or insolvency law.”
Because the appeals court found Cranmer may exclude Social Security income from his projected disposable income, he did not propose his plan in bad faith by excluding it.
“When a Chapter 13 debtor calculates his repayment plan payments exactly as the Bankruptcy Code and the Social Security Act allow him to ... that exclusion cannot constitute a lack of good faith,” the 10th Circuit said.
Trustee: Kevin R. Anderson, Salt Lake City
Debtor: Paul Toscano, Law Office of Paul Toscano, Salt Lake City
This article originally appeared in Westlaw Journal Bankruptcy, Vol. 9, Iss. 15.