Home / Uncategorized / 5th Circuit EXCLUDES Social Security Benefits from Income Calculation

5th Circuit EXCLUDES Social Security Benefits from Income Calculation

 In re Ragos, the Fifth Circuit Court of Appeals held that a Chapter 13 debtor’s Social Security income is not included in the debtor’s projected disposable income. Since Congress excluded Social Security income from “current monthly income” in Code § 101(10A) and “disposable income” in Code § 1325(b)(2), the court reasoned, it made little sense to circumvent that prohibition by allowing Social Security income to be included in projected disposable income. The conclusion that Congress exempted Social Security benefits was bolstered by two independently-enacted provisions of the Social Security Act, 42 U.S.C. § 407(a) and § 407(b). Even the fact that a debtor’s disposable income was negative did not constitute a “special circumstance” that would permit complete abandonment of the disposable income figure for purposes of establishing projected disposable income.

The Ragos Court also maintained that  the Chapter 13 debtor’s exclusion of Social Security income from the debtor’s disposable income did notr demonstrate a lack of good faith in proposing the debtor’s Chapter 13 plan. For the purpose of Code § 1325(a)(3), a debtor does not act in bad faith by merely for doing what the Bankruptcy Code permits.

The same issue is before the 4th Circuit and will slowly make its way to the 6th Circuit which includes Michigan.

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