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Tenth Circuit Finds SSI Benefit Payments May Be Excluded From Chapter 13 Plan - Anderson v. Cranmer

November 19, 2012

Vincent Howard and our Corona consumer bankruptcy lawyers were interested to see a case involving a dispute over whether Social Security payments can be part of a Chapter 13 bankruptcy plan. It is not disputed that Social Security income (SSI) is excluded from a debtor's calculation of current monthly income, the trustee in Anderson v. Cranmer argued that Fred Cranmer should have included those payments in his projected future income. As a result, the trustee objected to Cranmer's plan, saying it was proposed in bad faith because it excluded the SSI income. The bankruptcy court agreed, but the Utah district court reversed that ruling, and the Tenth U.S. Circuit Court of Appeals ultimately affirmed the district court.

Cranmer didn't include his SSI payments on the form for current income and calculation of disposable income, which all parties agreed was allowed. He did include the SSI in his statement of monthly income on Schedule I, but deducted a portion of it as exempt funds on his Schedule J, which represents expenses. As a result, his repayment plan excluded a portion of his SSI payment. The trustee's objection argued that SSI is not excluded from the calculation of projected disposable income. After a confirmation hearing, the bankruptcy court agreed and found that Cranmer's plan was therefore proposed in bad faith. Cranmer filed an amended plan under protest, this time including all of his SSI. However, he was unable to make payments and the bankruptcy court dismissed his case. Cranmer appealed to the district court, which reversed that dismissal, finding SSI can be excluded from projected disposable income.

The trustee appealed to the Tenth Circuit, but that court upheld the district court. The trustee argued that though SSI is excluded from the calculation of disposable income, it is not excluded from the calculation of projected disposable income. Projected disposable income is usually calculated from the past six months of the debtor's income, but courts have discretion to vary this when the past six months have had substantially lower or higher income than typical. The trustee argued that this is such a case because Cranmer is projected to receive $87,000 in SSI over the life of the plan and it will be surplus income for an above-median debtor like him. However, the Tenth said, the SSI is not a change that makes this an unusual case; it is regular income. Furthermore, the word "projected" does not change the meaning of "disposable income," which expressly excludes SSI because it rests in part on "current monthly income." Thus, Cranmer did not propose his plan in bad faith.

Vincent Howard and our Westminster personal bankruptcy attorneys are pleased to see this ruling, through we're sorry it was necessary. It is not controversial that SSI is excluded from disposable income, and such cases must arise fairly often. It is therefore surprising that a bankruptcy trustee would argue that there's a difference between disposable income and projected disposable income big enough to justify re-including SSI. Though a trustee's job is to maximize the money available to creditors, he or she is still bound by laws excluding certain income and assets. This trustee may have had an admirable zeal for his job, but at Howard Law, P.C., our Chino individual bankruptcy lawyers are glad SSI is excluded, because many debtors depend on that income.

If you are so deep in debt that you can't imagine how you'll ever escape, don't hesitate to call Vincent Howard and the team at Howard Law to discuss whether bankruptcy could help you. You can reach us through our website or call 1-800-872-5925.

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