An Arizona bankruptcy lawyer should always explain that Chapter 13 is different from Chapter 7 in that a debtor has to make monthly payments to the trustee for 3 – 5 years. A Chapter 13 trustee can usually consider all sources of income to determine the debtor’s Chapter 13 monthly payment.
In a nutshell, the monthly payment to the Chapter 13 trustee is your take home pay minus “reasonable” monthly expenses. What is left over is known as a debtor’s “projected disposable income”. The more income you have, the more you will probably have to pay to the Chapter 13 trustee for 3 – 5 years in order to receive a discharge.
However, a recent case from the Tenth Circuit held that a debtor’s Chapter 13 plan does not have to include Social Security in calculating monthly projected disposable income. What this means is that a Chapter 13 trustee can’t force a debtor to pay any of his or her Social Security in order for the trustee to approve the proposed Chapter 13 plan. The Tenth Circuit case is In re Cramner, No. 12-4002 (10th Cir. Oct. 24, 2012).
In re Cramner involved a Chapter 13 debtor who proposed not to include a portion of his $1,940 Social Security income in determining his Chapter 13 plan payment. The Chapter 13 trustee argued it was bad faith for the debtor to exclude his Social Security as part of his projected monthly income. The Court of Appeals disagreed, holding that the Bankruptcy Code excluded social security from the definition of disposable income that has to be paid into a Chapter 13 plan. As a result, the debtor had a smaller monthly Chapter 13 payment. He could essentially bank some or all of his Social Security.
Because Social Security Disability Income consists of Social Security proceeds, it too may not have to be paid to a Chapter 13 trustee.
Arizona is part of the 9th Circuit. Therefore, it isn’t clear whether the 9th Circuit courts will follow the In re Cramner holding.