Recent Cases - Provided By the National Association of Consumer Bankruptcy Lawyers.

Social Security Income Not Included in Projected Disposable Income

In an important victory for debtors, the Tenth Circuit 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. Anderson v. Cranmer (In re Cranmer), No. 12-4002 (10th Cir. Oct. 24, 2012).

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 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 court 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.

The court also dispensed with the trustee's attempt to align this case with Hamilton v. Lanning, 130 S.Ct. 2464 (2010), stating that there was no change in the debtor's income by reason of the exclusion of social security benefits. In fact, the court found that Lanning reconfirms the rule that disposable income is the starting point for calculating projected disposable income.

Finally, 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 submitted an amicus brief by Geoff Walsh and the opinion of the court largely tracks NACBA's arguments.

This issue is pending in the Fourth, Fifth and Ninth Circuits as well. See In re Ranta, No. 12-2017 (4th Cir.); Beaulieu v. Ragos (In re Ragos), No. 11-31046 (5th Cir.); Drummond v. Welsh (In re Welsh), No. 12-60009 (9th Cir.). NACBA filed amicus briefs in those cases.

Applicable Commitment Period

The Ninth Circuit in American Express v. Henderson, No. 11-35864, 11-35865, has withdrawn submission of the case pending issuance of a mandate in Danielson v. Flores, No. 11-55452 (9th Cir.). On August 31, 2012, the court in Flores reconfirmed the decision in Maney v. Kagenveama, 541 F.3d 868 (9th Cir. 2008), that the five year commitment period does not apply when the debtor has zero or negative disposable income. On September 12, 2012, the trustee filed a petition for rehearing that is still pending. NCBRC's Tara Twomey assisted on the debtor's brief in Flores and NACBA filed an amicus brief in the Henderson case.

NCBRC is currently preparing amicus briefs in the following cases:

  • In re Bullard, No. 12-54 (B.A.P. 1st Cir.)
    • Issue: Whether bankruptcy court erred in denying confirmation of "hybrid" plan proposing to bifurcate an undersecured claim and maintain payments on that claim over a period of time extending beyond the plan term.
  • Sheehan v. Posin (In re Posin), No. 12-1679 (4th Cir.)
    • Issue: Whether trustee has obligation to liquidate asset under § 724(b) that is security for tax lien to pay administrative fees owed to tax creditor where creditor has not sought relief from stay.
  • Parks v. Drummond (In re Parks), No. 12-60067 (9th Cir.)
    • Issue: Whether under section 541(b)(7) voluntary contributions to 401k plan constitute disposable income.
  • Parks v. Hudson (In re Parks), No. 12-1297 (D. Kan.)
    • Issue: Constitutionality of state bankruptcy-specific exemption for Earned Income Tax Credit