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Social Security Benefits Exempt From Chapter 13 Payments

The Jacksonville Bankruptcy court is part of the Middle District and a Middle District Court ruled on October 11, 2011 that Social Security benefits need not be included in either the Means Test or in the disposable monthly income (DMI) paid to unsecured creditors in a Chapter 13.

To quote the Honorable Judge Steele:
“Therefore, a Chapter 13 plan need not provide that social security benefits be included as projected disposable income which will be applied to payments for unsecured creditors.” See Vandenbosch v. Waage

Now we know that Social Security funds will not be used in calculating Chapter 13 payments, but what about cases that have already been filed? Judge Steele stated in his opinion that these benefits, “need not… be included as projected disposable income”. I would analyze this to say that they can be included if the debtor desires or needs to use the funds to show that they can fund a plan to overcome the “Good Faith” requirement of Chapter 13, but that the debtor cannot be required to use these funds if the debtor chooses not to.

What is yet to be seen is whether we can reduce payments on already confirmed plans that contemplated including the social security as income on Form B22C (Means Test). The court requires that a plan be modified if there is a, “change of circumstances” as to income. Historically, this meant an increase or decrease of income, not a reclassification of what income means. I take the position that this is a change of circumstances sufficient to justify a modification, though we will have to wait and see.

If you have social security benefits and would like to know your options in bankruptcy, please contact me via email or at 904-685-1200 to schedule a free initial consultation.

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