Ever since 2005, when means testing was added to the bankruptcy code, Social Security benefits have not been included as income when it came to determining whether you qualified for a chapter 7 or had sufficient income to pay creditors in a chapter 13. As a result, retired and permanently disabled people here in New Jersey whose income consisted mostly (or solely) of Social Security benefits easily passed the means test.
But that still left the simple cash flow analysis that has always been a part of bankruptcy. In other words, how much (if any) net income remained after reasonable and necessary living expenses had been paid? Was it enough to make a chapter 13 repayment plan more appropriate than a straight chapter 7 discharge of debt? Did that same Social Security income count in that calculation, and could it be used to pay creditors? Well, so far two federal circuits have said no.
The 10th Circuit (Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah) in the case of In re: Cranmer, and the 5th Circuit (Louisiana, Mississippi, and Texas) in the case of Beaulieu v. Ragos, have held that Social Security benefits are excluded from the calculation of current monthly income available to creditors in a chapter 13.
This can make a big difference in a repayment plan! For example, in the Beaulieu case, the debtor had received $1,854.00 per month in Social Security benefits, but only committed $200.00 per month to the Plan.
But Does This Help Us Here in New Jersey?
We here in New Jersey are a part of the 3rd Circuit, and it is certainly hoped that this trend in court decisions will reach us here soon. That would make it much easier for Social Security recipients to afford bankruptcy repayment plans. If it does, then you'll here it here first, so keep checking back here for updates or subscribe to my RSS Feed.
If you live in southern New Jersey and are thinking about bankruptcy, please call my office at 856-432-4113 or contact me through this site to schedule an appointment to discuss your options, and whether bankruptcy is right for you. If you are looking for further information, please download my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.