Social Security Benefits Not Exempt If Already Received, Minnesota Court Says
By Craig Andresen, Attorney at Law on Nov 30, 2008 in Bankruptcy Cases & Legislation, Exemption Issues
When social security benefits have already been received, but not yet spent on the date a bankruptcy case is filed, the funds cannot be claimed exempt under the federal bankruptcy exemptions, according to In re Carpenter, 2008 WL 4567128 (Bky.D.Minn. Oct. 14, 2008), a recent Minnesota bankruptcy court ruling.
This case held that bankruptcy code section 522(d)(10)(A) only allows the debtor to exempt his or her right to receive social security benefits in the future, and that section 522(d)(10)(A) did not authorize exemption of such benefits, if the funds remained in the debtor’s possession on the date of filing.
The debtor in Carpenter had filed a chapter 7 case while in possession of about $17,000, which he had received as settlement of a social security claim shortly before filing bankruptcy. He selected the federal bankruptcy exemptions, and claimed the $17,000 exempt pursuant to section 522(d)(10)(A). He also argued that 42 U.S.C. section 407 insulated social security benefits from the reach of any bankruptcy trustee, regardless of whether he selected the federal or state bankruptcy exemptions.
Although recognizing there was a split of authority on the issue, the court ruled that where a debtor selects the federal bankruptcy exemptions, he or she is prevented from relying on any non-bankruptcy exemptions, even 42 U.S.C. section 407.
The court in Carpenter was not moved by the debtor’s argument that section 407 was enacted by Congress in 1983 specifically to reverse a previous federal court ruling that resulted in a bankruptcy debtor losing already-received social security benefits.
The message of In re Carpenter is that where a debtor is using the federal bankruptcy exemptions, and is in possession of social security funds, it is best to spend the funds in an appropriate manner before the bankruptcy is filed, unless the amount involved is small and can be claimed exempt pursuant to 11 U.S.C. section 522(d)(5).
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