Chapter 13 debtors may keep Social Security Income

Thompson Reuters News & Insight, October 26, 2012

October 26 (Consumer Bankruptcy News) – The Bankruptcy Code says Social Security income is not included in a debtor’s “disposable income.” Because it is not included in “disposable income” it cannot be included in a Chapter 13 debtor’s “projected disposable income.” Neither the Supreme Court’sLanning ruling nor good faith changes this outcome, and requires that Social Security income be committed to plan payments, the 10th U.S. Circuit Court of Appeals ruled in Anderson, Trustee, v. Cranmer (In re Cranmer), 2012 WL 5235365 (10th Cir. 10/24/12).

The above-median income Chapter 13 debtor received $1,940 per month in Social Security income. He did not include this income in the calculation of his disposable income because Section 101(10A)(B) excludes Social Security income from a debtor’s Current Monthly Income. He did, however, disclose it on Schedule I, and then deducted a portion of it on Schedule J as an exempt Social Security benefit.

The bankruptcy court sustained the trustee’s objection to the debtor’s proposed plan, which allowed him to keep his Social Security income. The court found that the Social Security payments should have been included in the debtor’s projected disposable income, and that the debtor’s failure to do so was bad faith.

Acting under protest, the debtor amended his plan to conform to the court’s ruling. This plan was confirmed, but the debtor was unable to maintain his payments and the case was dismissed. The debtor appealed the dismissal order asserting that the bankruptcy court erred by not confirming his original plan.

The district court agreed with the debtor, and reversed the bankruptcy court’s ruling. The 10th Circuit affirmed.


The trustee asserted that it was known, or virtually certain, that the debtor would receive more than $87,000 in Social Security income over the life of his plan. He argued that above-median income debtors should not be allowed to shield such surplus income from the repayment of their unsecured debts. The trustee said his argument was supported by the Supreme Court’s ruling in Hamilton v. Lanning (In re Lanning), 130 S.Ct. 2464 (2010), and mandated by Section 1325(a)(3)’s good faith requirement.

Because the trustee objected to confirmation of the debtor’s plan, Section 1325(b) required the debtor to commit all his projected disposable income to plan payments. The Bankruptcy Code does not define “projected disposable income,” but it does define “disposable income” as Current Monthly Income minus certain deductions. Section 105(10A)(B)’s definition of “Current Monthly Income” specifically excludes benefits received under the Social Security Act. Therefore, Social Security income is not included when calculating disposable income.

When determining a Chapter 13 debtor’s projected disposable income, the Supreme Court in Lanningsaid the starting point is the debtor’s disposable income. In unusual cases this amount may be modified to account “for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.”

The 10th Circuit said the debtor’s case was not one of the unusual ones requiring modification of the debtor’s disposable income in order to determine the amount of his projected disposable income because the debtor’s receipt of Social Security income was not a change. He was receiving it during the six months preceding his bankruptcy filing, and continued to receive it at the time of plan confirmation.

“More importantly, it is income the Bankruptcy Code expressly allows him to exclude from the disposable income calculation,” the 10th Circuit said. Although “projected disposable income” is not defined, “disposable income” is and its meaning does not change with the addition of the adjective “projected.”

“Moreover, nothing in Lanning suggests a court may disregard the Code’s definition of disposable income in calculating projected disposable income,” the court said. “To the contrary, Lanning made clear a debtor’s disposable income is not only the starting point in calculating projected disposable income, but in most cases it is determinative.”

The 10th Circuit found additional support for its conclusion in the Social Security Act, which shields payments made pursuant to the Act from “execution, levy, attachment, garnishment, or other legal process,” or from “the operation of any bankruptcy or insolvency law.”


In addition to being required to commit all of his projected disposable income to plan payments, the debtor also needed to propose his plan in good faith. The trustee argued that the good faith inquiry was separate from the projected disposable income inquiry. He asserted that it was not an act of good faith for the debtor to propose a plan that allowed him to keep more than $87,000 in income even if the income was not included in his projected disposable income.

The 10th Circuit was not persuaded.

“When a Chapter 13 debtor calculates his repayment plan payments exactly as the Bankruptcy Code and the Social Security Act allow him to, and thereby excludes SSI, that exclusion cannot constitute a lack of good faith,” the court said.

“A contrary holding would render the Code’s express exclusion of SSI from the calculation of the debtor’s disposable income, and thereby, its exclusion of SSI from the calculation of the debtor’s projected disposable income, meaningless.”


The issue of whether Social Security income is included in a Chapter 13 debtor’s projected disposable income is currently on appeal in the 4th and 5th Circuits. In both cases, In re Ranta, No. 12-2017 (4th Circuit), and In re Ragos, No. 11-31046 (5th Circuit), the National Association of Consumer Bankruptcy Attorneys has filed an amicus brief in support of the debtor. The debtors are the appellants in Rantaand the trustee is the appellant in Ragos.

nkruptcy Code says Social Security income is not included in a debtor’s “disposable income.” Because it is not included in “disposable income” it cannot be included in a Chapter 13 debtor’s “projected disposable income.” Neither the Supreme Court’s Lanning ruling n

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