Bankruptcy

Social Security Income Does Not Have To Be Used To Pay Your Creditors.

By Rachel Lynn Foley, Kansas City, MO, Bankruptcy Att

In re Green 09-44481 of the Western District of Missouri Bankruptcy Court established that Social Security funds do not necessarily need to be used to pay one’s creditors.  In this case the debtors have a surplus of income in the amount of $1,468.94 per month.  This surplus income is solely derived from Social Security benefits.  The husband and wife in this case both had income from their jobs in addition to the Social Security income.

As a result, the Chapter 13 Trustee filed a Motion to Deny Confirmation on bad faith.  The trustee felt it was bad faith because the debtors had a comfortable income to live on and theoretically could pay more in their Chapter 13 Plan towards their creditors.  Bad faith under 1325(a)(3) of the Bankruptcy Code states a debtor must give all his surplus income to the Court to be paid towards his unsecured creditors.  However, Congress specifically excluded Social Security income from the calculation of the Means Test equation.  So the debtors’ counsel challenged the Trustee’s Motion to Deny Confirmation and won.

Judge Venters issued his opinion on February 1, 2010 explaining that “Consideration of a debtor’s finances as part of the good faith inquiry has not been abandoned, but the conclusion is inescapable that a debtor’s ability to pay is no longer a central or predominant factor in determining good faith under 1325(a)(3).”  The bottom line is if the Chapter 13 makes “bad faith” as his sole objection to the Plan for not committing Social Security Income, the end result will be that the Motion is denied.

What does this mean for the debtor?  This means that for those debtors in the Western District of Missouri who file a Chapter 13 and have surplus income from Social Security each month they can save this money for true retirement instead of paying their unsecured creditors and still receive a discharge of their debt.

Full post as published by Bankruptcy Law Network on February 10, 2010 (boomark / email).