"Social Security Income Not Included in Projected Disposable Income
In two important victories for debtors, the Fifth and Tenth Circuits have found that social security income is not included in the calculation of projected disposable income and that its exclusion cannot support a finding of bad faith. Beaulieu v. Ragos (In re Ragos), No. 11-31046 (5th Cir. Oct. 29, 2012); Anderson v. Cranmer (In re Cranmer), No. 12-4002 (10th Cir. Oct. 24, 2012). In both cases, the trustee argued that while social security income is not included in disposable income under section 101(10A)(B) it should be included in the calculation of "projected disposable income" under section 1325(b). The court in Cranmer disagreed, reasoning that "[t]he 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 courts noted that the exclusion of social security benefits from the grasp of creditors in bankruptcy is supported by similar protections included in the Social Security Act.
Both courts dispensed with the trustees' attempt to align the cases with Hamilton v. Lanning, 130 S.Ct. 2464 (2010), finding that Lanning reconfirms the rule that disposable income is the starting point for calculating projected disposable income and that the existence of social security income is not a change in circumstances that would trigger the Lanning holding.
Finally, both court rejected the argument that failure to pay social security income into the plans constituted bad faith. In Cranmer, the court stated the rule that "[w]hen a Chapter 13 debtor calculates his repayment plan payments exactly as the Bankruptcy Code and Social Security Act allow him to, and thereby excludes SSI, that exclusion cannot constitute a lack of good faith."
NACBA filed amicus briefs in both of these cases.
This issue is pending in the Fourth and Ninth Circuits. See In re Ranta, No. 12-2017 (4th Cir.) (briefing ongoing); Drummond v. Welsh, No. 12-60009 (9th Cir.) (argued Nov. 8, 2012). NACBA filed amicus briefs in both of those cases as well.
Trustee Must Return Funds Upon Conversion
The Third Circuit in In re Michael, 2012 U.S. App. LEXIS 22244 (3d Cir. Oct. 26, 2012), ruled for the debtor on the issue of whether the chapter 13 trustee had to turn over to the debtor funds that the trustee was holding when the debtor converted from chapter 13 to chapter 7 after confirmation of the plan. Rejecting the trustee's position, which was supported by an amicus brief filed by all the chapter 13 trustees in the circuit, the court held that the trustee could not distribute the funds to creditors. The court reasoned that the conversion ended the chapter 13 trustee's services and vacated the order confirming the plan. It also found that the legislative history of section 348(f) supported the conclusion that Congress did not intend for the debtor to have the disincentive to filing chapter 13 that would be caused by the risk that filing a chapter 13 case could cause the loss of postpetition property if the debtor later had to convert to chapter 7.
NACBA's brief was written by Irv Ackelsberg, who also was permitted to argue on NACBA's behalf in the court of appeals.
NACBA Amicus in Bifurcated Lien Treatment in Chapter 13
NACBA has filed an amicus brief in the case of In re Bullard, No. 12-54 (B.A.P. 1st Cir.). That case involves a chapter 13 plan under which a mortgage is bifurcated into secured and unsecured portions with the unsecured portion being paid, pro rata, through the plan, and the secured portion being paid according to the terms of the contract outside the plan and extending beyond the plan period. The trustee objected to the plan arguing that if modification is permitted under section 1322(b), the payments on the mortgage must be completed within the plan period. In its brief NACBA argues that the plain language of section 1322 permits such lien treatment. Specifically, "[a]ll section 1322(b)(5) requires is that the debtor cure any arrearage and make payments on the creditor's secured claim according to the contract during the life of the plan. Section 1322(b)(2) is permissive allowing debtors to modify certain claims. Section 1322(d) limits the life of the plan to five years. These sections do not require the debtor to pay the claim in full while the case is pending, nor do they preclude the debtor from making payments on the long-term obligation after the plan has been completed."
David Barnes drafted NACBA's brief.
Argued:
Drummond v. Welsh, No. 12-60009 (9th Cir.) argued on 11/8:
Issue: Whether social security income is included in projected disposable income.
Argument date: November 18, 2012
NACBA filed an amicus brief
In re Stephens, No. 11-6309 (10th Cir.)
Issue: Whether the absolute priority rule applies in individual chapter 11 cases.
Argument date: November 7, 2012
NACBA filed an amicus brief.
Arguments Scheduled:
Williamson v. Westby (In re Westby), No. 12-27 (B.A.P. 10th Cir.)
Issue: constitutionality of bankruptcy-specific exemption
Argument date: December 7, 2012
NCBRC assisted in writing the debtor's brief.
Weber v. SEFCU, No. 12-1632 (2d Cir.)
Issue: Whether, upon learning of the debtor's bankruptcy filing, a creditor must return vehicle it had repossessed, or whether it can hold the vehicle until ordered by the bankruptcy court to return it to the debtor.
Argument date: December 4, 2012
NACBA filed an amicus brief"
