District Court Reverses Denial of Confirmation for Failure to Include Social Security Benefits as Projected Disposable Income
The United States District Court for the Middle District of Florida reversed the bankruptcy court’s decision denying confirmation of a proposed chapter 13 plan based on the debtor’s failure to include social security benefits as “projected disposable income,” to be applied to payments for unsecured creditors under the plan. In doing so, the district court held that the plain definition of “disposable income” set forth in 11 U.S.C. § 1325(b)(2) and the definition of “current monthly income” set forth in 11 U.S.C. § 101(10A), a chapter 13 plan need not provide that social security benefits be included as “projected disposable income.”
The Chapter 13 Plan
In March 2010, Charles Vandenbosch (“Debtor”) filed a chapter 13 bankruptcy petition and proposed chapter 13 plan (“Plan”). Debtor’s accompanying schedule of current income (“Schedule”) showed social security income of $2,885 per month. However, the Plan failed to include any of the social security benefits as “projected disposable income” to be used to satisfy debts to unsecured creditors. The trustee objected to confirmation of the Plan on that basis.
The Bankruptcy Court’s Ruling
Denying the Plan confirmation, the bankruptcy court found that Debtor did not contribute all of his “disposable income” to be received during the applicable commitment period pursuant to 11 U.S.C. § 1325(b), based on his failure to commit his social security income to payments to be made on unsecured claims under the Plan. In issuing its order, the bankruptcy court held that a chapter 13 plan must include social security benefits as “projected disposable income.” Debtor appealed the bankruptcy court’s decision to the district court.
BAPCPA Excludes Social Security Benefits from “Projected Disposable Income”
Rendering its decision on appeal, the district court began by considering the definition of “projected disposable income.” In defining “projected disposable income,” the district court clarified that it would not interpret the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a change. In that regard, the district court concluded that the amendment to the definition of “disposable income” in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) presented a clear indication of Congress’s intended departure. Noting that pre-BAPCPA, social security benefits were generally included in the calculation of “disposable income,” the district court noted that pursuant to § 1325(b)(2), “disposable income” is defined as current monthly income, less amounts reasonably necessary for maintenance and support and, under §101(10A), “current monthly income” is now defined to exclude social security benefits.
Combining the plain language of both statutes, the district court observed that “projected disposable income” is a forward-looking approach consisting of the average monthly income from all sources, without regard to taxability, derived during the six-month period preceding the bankruptcy filing, less amounts reasonably necessary to be expended for maintenance, but “excluding benefits received under the Social Security Act.” The district court added that its statutory interpretation was also consistent with the Social Security Act, which specifies that a person’s right to any future payment thereunder is not subject to and cannot be superseded by the operation of bankruptcy law. 42 U.S.C. § 407(a), (b). Thus, the district court determined that a chapter 13 plan need not provide that social security benefits be included as “projected disposable income” that will be applied to payments for unsecured creditors. Accordingly, the district court held that the bankruptcy court had committed clear error by denying confirmation based on Debtor’s failure to include social security benefits as “projected disposable income” in the Plan.
District Court Reverses Order
In sum, holding that the bankruptcy court erred in denying Plan confirmation based on Debtor’s failure to include social security benefits as “projected disposable income,” the district court reversed the Order.
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