Chapter 13 Bankruptcy, Social Security and In Re Vandenbosch

by Carmen Dellutri, Esq.

October 28, 2011

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In Re Vandenbosch answers the question of whether a Chapter 13 Debtor must include their social security benefits in the determination of monthly income in Southwest Florida.  In the past, debtors were required to use their social security to repay creditors claims in their bankruptcy plans.  This was a very unfair practice in my opinion, and therefore, The Dellutri Law Group decided the issue needed to be heard by an appellate court.

In a very recent opinion, Judge Steele of the U.S. District Court in Fort Myers, Florida overruled the Bankruptcy Court decision to include Social Security Benefits into Disposable Monthly Income.  In the case of In Re Vandenbosch, one of the issues on appeal was whether a debtor who receives social security benefits must include those benefits as part of their income in the determination of available monthly income.  Judge Steele ruled that a Chapter 13 debtor does not have to include their social security benefits in the calculation of monthly income.Disposable monthly income is determined by looking at a Chapter 13 debtor(s) income from all sources and then subtracting all of their ordinary and necessary expenses.  The money leftover is the debtor’s disposable monthly income.  In a Chapter 13, the debtor or debtors must turnover all of their income to the Chapter 13 Trustee for distribution to the unsecured creditors.

When the debtor’s disposable monthly income included social security benefits, this put the bankruptcy code at odds with the social security statute.  The social security statute clearly states that benefits are exempt from creditor’s claims.  Logically, it seems that these exact same benefits should not be used to pay the claims of creditors during a bankruptcy proceeding.

In a prior post on Bankruptcy Law Network, Attorney Wendell Sherk, noted the exact same issue before the 8th Circuit Bankruptcy Appellate Panel.  The 8th Circuit came out with the same conclusion, that social security should be excluded from disposable income; however, the Court there did not look at the bad faith issue.  Judge Steele found no bad faith in the Vandenbosch decision.

Why and How Bankruptcy Courts came to the determination that social security benefits should be included in disposable income was shocking to me.  Now that the issue has been decided by Judge Steele many other people, senior citizens on social security included, should be looking at the benefits of Chapter 13 bankruptcy.

Without having to include their social security benefits into the determination of disposable income, a person or couple who receive social security benefits repayment plan could look much different now than they did a couple of months ago.

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Carmen Dellutri is a proud member of the Florida Bar, and he is a Board Certified Consumer Bankruptcy Attorney, Certified by the American Board of Certification. He practices in the areas of Consumer Bankruptcy and Plaintiff's Personal Injury. He is the principal attorney at The Dellutri Law Group, P.A. The firm supports many charitable and civic causes by donating time and much needed capital to our community. Mr. Dellutri and the other attorneys in the firm routinely speak to students of all ages about various legal and societal issues.

Last modified: November 7, 2011