How Does Social Security Affect Disposable Income in Chapter 13 Bankruptcy?

In a Chapter 13 bankruptcy, how Social Security income affects your disposable income and your Chapter 13 plan payments varies depending on the court. In most courts, if you have a significant amount of Social Security income, the court will take this into account when approving your Chapter 13 plan payments. The initial determination of whether your income is above or below the state median income, however, does not take into account Social Security income. Read on to learn why this matters and how courts treat this type of income.

Social Security Income and Form 22C (Current Monthly Income)

Form 22C, “Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income,” is one of the official bankruptcy forms that you must file with your Chapter 13 petition. This form calculates your current monthly income, which is actually an average of the income you received in the six months before filing bankruptcy. One purpose of this form is to determine if your income is above or below the median income in your state. Form 22C clearly excludes Social Security benefits.

By not including Social Security income on Form 22C, the resulting income figure is more likely to be less than your state’s median income. This has several advantages in Chapter 13 bankruptcy.

Length of Plan

If your Form 22C income figure is less than the state median income, you can propose a plan that lasts only three years instead of the five years required for debtors with above-median incomes.

Expense Figures

If your income is below the state median income, you can use your actual expenses when figuring out disposable income (assuming those expenses are reasonable). Above-median debtors must use IRS standard allowances for certain expenses, such as transportation and utilities, even if their actual expenses are greater than those figures. Keep in mind, however, that many courts look to the IRS standards in determining if your actual expenses are reasonable. So even if you are a below-median income debtor, you may not be able to include all of your actual expenses if they are on the high side.

Social Security Income and Schedule I

A debtor filing for Chapter 13 bankruptcy must also complete Schedule I, which gives the court a picture of the monthly income that the debtor expects to receive going forward. This income figure may be different from the figure on Form 22C if, for example, you recently lost your job or suffered a reduction in work hours. Schedule I, in contrast to Form 22C, must include Social Security benefits.

Until recently, courts were at odds as to what to do if the income figures in Form 22C and Schedule I were significantly different. Some courts followed the “mechanical” approach and only looked at Form 22C when approving plan payments. Others followed a “forward-looking” approach, and took into account information on Schedule I (the debtor’s actual or projected income) when approving plan payments.

In Hamilton v. Lanning, the U.S. Supreme Court endorsed the forward-looking approach. It stated that a bankruptcy court may consider changes to a debtor’s income and expenses that are certain or virtually certain. This means that courts are very likely to take into consideration Social Security income when calculating disposable income. This would result in a higher monthly Chapter 13 plan payment.

Keep in mind that this area of the law is still in flux. Different courts and bankruptcy districts may view Social Security income differently as it relates to projected disposable income. To find out how the courts in your area treat Social Security income, consult with a local bankruptcy attorney.

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