Can I Keep My Social Security Income During My Chapter 13 Bankruptcy?
In many bankruptcy courts, you don't have to include social security income in your Chapter 13 plan payment.
If you receive social security benefits, will you have to turn them over to your Chapter 13 trustee as part of you plan payment? Although more courts are allowing debtors to keep their social security payments in Chapter 13 bankruptcy, whether you will be able to do so will depend on where you file.
The Chapter 13 Repayment Plan
If you file for bankruptcy under Chapter 13, you may keep your assets. In exchange, you must repay your creditors in full, or in part, through your Chapter 13 repayment plan. The repayment period lasts between three and five years (less if you pay off your debts in full at an earlier date). When you repayment period ends, the remaining balance on your unsecured debts will be discharged (wiped out). There are some exceptions to this.
To learn about how the Chapter 13 plan works, how much you must pay, and more, see our Chapter 13 Repayment Plan topic area.
Disclosing Income on Your Bankruptcy Papers
You must disclose all of your income on your bankruptcy petition and schedules. This includes your social security income. If you fail to list your social security income, the bankruptcy trustee could object to your plan because it does not accurately reflect your financial situation.
Your Monthly Plan Payment in Chapter 13
In Chapter 13 bankruptcy, you must contribute all of your disposable income to your repayment plan. Disposable income is calculated by subtracting your reasonable and necessary living expenses from your current monthly income. You use Bankruptcy Form 22C to figure out your disposable income. (To learn more, see Completing Form 22C in Chapter 13 Bankruptcy). The higher your disposable income, the more you pay to your unsecured creditors.
Should You Include Social Security Income as Part of the Current Monthly Income Calculation?
The Bankruptcy Code defines current monthly income as all the money you received for the six months before your bankruptcy divided by six. It is at this point that you will have to determine whether you should include your social security income in figuring out how much income you have received in the last six months. In most jurisdictions, you do not have to include it. But that is not the case in all courts.
Recently, the federal appellate courts in the Fourth, Fifth, Sixth, Eighth, and Tenth circuits have ruled that social security income should not be included. This means that if you live in Arkansas, Colorado, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, or Wyoming, you will not have to include social security payments when calculating your income.
Example. Say you received $1000 per month in income and $200 per month in social security in the six months before your Chapter 13 filing. If your social security income is not included in disposable income, then your average income would be $1,000 (not $1,2000). If your monthly expenses are $900, then your disposable income would be $100 ($1,000-$900), not $300 ($1,200-$900).
Determining the Law in Your Bankruptcy Court
There are several ways to find out what the law regarding social security income is in your bankruptcy jurisdiction.
- Consult with a local bankruptcy attorney.
- Review Chapter 13 filings in your district. You can find these through PACER (Public Access to Court Electronic Records). Although it is free to get an account, PACER does charge 10 cents per page to download documents.
- Do some legal research. Check out Nolo’s Legal Research Center to learn how. You can also find information about the law in various courts on www.legalconsumer.com.
Challenging the Law
If the law is unclear in your district, you can exclude social security income and see if the Chapter 13 trustee objects. If the trustee does, then you’ll have to argue to the court that social security should not be included as part of your disposable income. You’ll need a lawyer to help you do this.
Arguments for excluding social security income. The courts that have decided that it is not necessary to include social security income have relied on two legal arguments:
- the Bankruptcy Code definition of “current monthly income” excludes social security income, and
- the Social Security Act states that social security income should not be included in a debtor’s bankruptcy estate.
Arguments for including social security income. Chapter 13 trustees who require the inclusion of social security income argue that it is not fair to creditors to allow debtors to keep their social security income that is not needed for basic expenses because the debtor could that money to pay more per month, thus fulfilling the intent of Chapter 13.