§ 12.5 — Social Security

Revised: April 26, 2016


To be eligible for Chapter 13, 11 U.S.C. §§ 109(e) and 101(30) require an individual to have “income . . . sufficiently stable and regular to . . . make payments under a plan.”1 Whether Social Security benefits constitute “stable and regular” income for Chapter 13 eligibility purposes has been much confused by the courts and by 1983 amendments to the Social Security Act. The special treatment of Social Security benefits by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)2 for purposes of calculating projected disposable income at confirmation has encouraged the confusion.


The legislative history of the 1978 Code indicates that Congress contemplated that the beneficiaries of entitlements programs like Social Security would access Chapter 13 for debt relief.3 Prior to 1983, it was common in some jurisdictions to fund a Chapter 13 plan in whole or in part with Social Security benefits, though the courts disagreed whether Social Security benefits constituted regular income.4 The pre-1983 decisions were split on the question whether the Social Security Administration could be required to remit a debtor’s benefits directly to the Chapter 13 trustee.5


In 1983, 42 U.S.C. § 407—the anti-assignment provision of the Social Security Act—was amended, ostensibly to clarify that the Social Security Administration was not subject to income deduction orders in Chapter 13 cases. Cases decided after the 1983 amendment acknowledge that income deduction orders under 11 U.S.C. § 1325(c) cannot be enforced against the Social Security Administration because of 42 U.S.C. § 407.6


One recent district court decision goes the (uncertain) further step to hold that § 407 of the Social Security Act requires that Social Security benefits cannot be considered income for eligibility purposes in a Chapter 13 case. The debtor in Santiago-Monteverde v. Pereira (In re Santiago-Monteverde)7 moved to convert from Chapter 7 to Chapter 13 after the Chapter 7 trustee moved to sell the debtor’s rent-subsidized lease. The district court reversed and remanded the bankruptcy court’s conclusion that conversion was not available because the debtor lacked sufficient income to be eligible for Chapter 13 relief;8 but along the way the district court had this to say about Social Security benefits and the regular income requirement in § 109(e):

Section 207 of the Social Security Act, enacted in 1935, provides that “none of the moneys paid or payable or rights existing under this subchapter shall be subject to . . . the operation of any bankruptcy or insolvency law.” 42 U.S.C. § 407(a). . . . 
. . . . 
In 1983, . . . Congress amended section 207, adding a subsection providing that no provision of law could be construed to limit, supersede, or otherwise modify that section unless such a provision does so expressly. 42 U.S.C. § 407(b) . . . .
. . . . 
This categorical exemption excludes Social Security income from the operation of all bankruptcy or insolvency laws, regardless of whether they may be beneficial or detrimental to the Social Security recipient.
. . . . 
[I]t is income itself that may qualify an individual as a Chapter 13 debtor—not cash on hand, wealth, or funds in a bank account. The Chapter 13 eligibility question . . . cannot be assessed without consideration of the source of that income. In this case, a proposed source is the debtor’s Social Security income, which creates an unavoidable conflict between section 207 and the eligibility determination of section 109(e) of the Bankruptcy Code. . . . 
. . . .
[I]t is improper for a bankruptcy court to consider a debtor’s Social Security benefits in determining whether she is an individual with regular income within the meaning of section 101(30).9

The district court in Santiago-Monteverde made much of the 1983 enactment of § 407(b) as evidence that Congress intended to exclude Social Security benefits from income for Chapter 13 eligibility purposes. Curiously, § 407(a)—the anti-assignment provision actually at issue in Santiago-Monteverde—preexisted the 1983 enactment of § 407(b) and was not amended before or after the Bankruptcy Act of 1978 or BAPCPA in 2005. There is no question that the 1983 enactment of 42 U.S.C. § 407(b) targeted court decisions debating whether income deduction orders could be enforced against the Social Security Administration. But there is no inkling in the enactment of § 407(b) in 1983 that the target was eligibility for Chapter 13. It is telling that the district court in Santiago-Monteverde does not address the 2005 enactment of § 101(10A)(B), which removes Social Security income from the calculation of current monthly income at confirmation in a Chapter 13 case.10 Why would Congress enact an exclusion of Social Security benefits from disposable income in BAPCPA in 2005 if Social Security benefits were already excluded from income for all bankruptcy purposes by virtue of 42 U.S.C. § 407(a)? The answer is simple: the holding in Santiago-Monteverde goes well beyond any plausible congressional intent in the enactment of 42 U.S.C. § 407(b) and conflicts with explicit congressional intent that Social Security recipients are eligible for Chapter 13 relief.


Detailed elsewhere,11 in 2005 BAPCPA redefined the income side of the projected disposable income test at confirmation with a new term of art, current monthly income (CMI). Though hardly a model of clarity, CMI excludes from the projected disposable income test “benefits received under the Social Security Act.”12 Thus, for confirmation purposes, debtors need not include in CMI Social Security benefits—putting those benefits beyond the entitlement of unsecured creditors at confirmation under § 1325(b).


BAPCPA contains no similar exclusion of Social Security benefits from the “regular income” that is required for eligibility by § 109(e). BAPCPA states explicitly that Social Security benefits need not be committed to payments to creditors to satisfy the projected disposable income test but says nothing to suggest that Social Security benefits cannot be regular income for eligibility purposes.


Nowhere does the Bankruptcy Code require that regular income must come from an entity that is subject to deduction orders under § 1325(c).13 That the Social Security Administration may be insulated from § 1325(c) by other federal law is not indicative of congressional intent that Social Security recipients are not eligible for Chapter 13. Social Security benefits are often regular, and they are certainly cash money available to fund a Chapter 13 plan. That a creditor of the debtor could not attach or execute upon Social Security benefits because of the anti-assignment provisions of 42 U.S.C. § 407 enhances the quality of such benefits as regular income for Chapter 13 purposes. Chapter 13 is voluntary, and a Chapter 13 debtor can volunteer to use Social Security benefits to fund a Chapter 13 plan. The existence of regular income for Chapter 13 purposes should not be affected by whether the source of income is protected from creditor actions or whether the source of income is subject to income deduction orders under § 1325(c). The better reasoned conclusion is that Social Security benefits can be a source of regular income for § 109(e) purposes.14


One court tackled this issue broadside with the holding that the 1983 amendments to § 407 of the Social Security Act unconstitutionally deny Chapter 13 relief to Social Security recipients on an equal protection theory.15 Prior to BAPCPA, other courts held that Social Security benefits were income for purposes of the disposable income test in § 1325(b), notwithstanding that such benefits were excluded from property of the estate and protected from income deduction orders.16 One court went further to conclude that a nondebtor spouse’s Social Security benefits were income at confirmation of the debtor’s plan.17


Even in jurisdictions where income deduction orders cannot be sent to the Social Security Administration and where the eligibility question is confused, absent objection from a party in interest, Social Security recipients make use of Chapter 13. In a Chapter 13 case, Social Security benefits may be voluntarily contributed by the debtor and used to pay creditors. This winking attitude toward the use of Social Security benefits to fund Chapter 13 plans is a practical response to the unfortunate holdings of some courts. It is certainly in the best interests of creditors that a debtor would volunteer to use protected Social Security benefits to make payments to creditors under a Chapter 13 plan.


Social Security benefits will not always be sufficient in amount, duration, or regularity to fund a Chapter 13 plan. For example, in In re Crowder,18 the debtor was incarcerated and received $126 per month as Social Security benefits for her 17-year-old son. The debtor proposed to fund the plan using a portion of that $126. The court found that “[w]hile social security benefits are sometimes sufficient to support a plan . . . in this instance the payments are not sufficiently regular and stable because they may terminate within eleven months, when her son reaches 18 years of age.”19 In contrast, in In re Murray,20 Social Security survivor’s benefits payable to a seven-year-old debtor were sufficiently regular and stable to be regular income for eligibility purposes.21


1  See 11 U.S.C. §§ 109(e) and 101(30), discussed in § 9.1  Summary of Eligibility Requirements and § 11.1  What Is Regular Income?.


2  Pub. L. No. 109-8, 119 Stat. 23 (2005).


3  See H.R. Rep. No. 95-595, at 119, 312 (1977) (“Even individuals whose primary income is from . . . social security . . . may use chapter 13 if their income is sufficiently stable and regular.”); S. Rep. No. 95-989, at 24 (1978).


4  Compare United States v. Devall, 704 F.2d 1513 (11th Cir. May 16, 1983) (Tjoflat, Hill, Johnson) (Social Security benefits are regular income.), with Hildebrand v. Social Sec. Admin. (In re Buren), 725 F.2d 1080 (6th Cir. Jan. 23, 1984) (Keith, Martin, Aldrich) (Questioning whether Social Security benefits can be regular income.).


5  Compare United States v. Devall, 704 F.2d 1513 (11th Cir. May 16, 1983) (Tjoflat, Hill, Johnson) (Social Security Administration can be ordered to deduct a portion of a debtor’s benefits and send that portion to the Chapter 13 trustee.), with Hildebrand v. Social Sec. Admin. (In re Buren), 725 F.2d 1080 (6th Cir. Jan. 23, 1984) (Keith, Martin, Aldrich) (Income deduction orders are not enforceable against Social Security Administration.).


6  See, e.g., United States v. Carey, 36 B.R. 194 (Bankr. D. Kan. Dec. 28, 1983) (Pusateri).


7  512 B.R. 432 (S.D.N.Y. June 27, 2014) (Castel).


8  The debtor had several potential sources of income in addition to Social Security benefits, and remand was necessary to consider those other sources in the context of a corrected standard for eligibility under § 109(e). See § 11.1  What Is Regular Income?.


9  In re Santiago-Monteverde, 512 B.R. at 43941 (footnote omitted).


10  See below in this section, and see § 92.3  Current Monthly Income: The Baseline.


11  See § 92.1  In General, § 92.2  Projected Disposable Income: All Debtors and § 92.3  Current Monthly Income: The Baseline.


12  11 U.S.C. § 101(10A)(B), discussed in § 92.3  Current Monthly Income: The Baseline.


13  11 U.S.C. § 1325(c) is discussed in § 125.1  Order to Debtor’s Employer, § 125.2  Can Employer Charge a Fee?, § 125.3  Direct-Pay Orders, § 125.4  Changing Employers or Source of Income, § 125.5  Modification and Suspension of Income Deduction Orders, § 125.6  Failure to Deduct or Remit and § 125.7  Special Deduction Order Problems: Entitlements, Pensions and Government Employers.


14  In re Rigales, 290 B.R. 401 (Bankr. D.N.M. Mar. 17, 2003) (McFeeley) (Social Security and food stamps can be regular income for purposes of § 109(e).). See also In re Ganaway, No. 09-33038, 2010 WL 3168071 (Bankr. S.D. Ill. Aug. 10, 2010) (unpublished) (Grandy) (Former spouse’s Social Security benefits are regular income. Former spouse was ill, lived in debtor’s home and was cared for by debtor. Former spouse consistently paid all Social Security disability benefits to debtor for eight years, as form of rent. Former spouse had ability and willingness to continue payments.).


15  In re Baxter, 34 B.R. 911 (Bankr. E.D. Tenn. Nov. 18, 1983) (Kelley). But see In re Roach, 90 B.R. 286 (Bankr. W.D. Mich. Sept. 14, 1988) (Gregg), aff’d, 94 B.R. 440 (W.D. Mich. Dec. 29, 1988) (Gregg).


16  See §§ 164.1    [ SECTION_NOT_FOUND ] 46.2, 46.7, 90.2, 91.2; see also 90.3, 92.1, 92.2, 92.3, 125.7. See, e.g., In re Cornelius, 195 B.R. 831, 835 (Bankr. N.D.N.Y. Dec. 5, 1995) (Gerling) (“Social Security Income, while exempt under state law, is to be incorporated in any projections of future income for purposes of determining disposable income. . . . Social Security Income received by the Debtor on behalf of her minor daughter is properly included in the Debtor’s calculation of disposable income.”); In re Solomon, 166 B.R. 832, 841 (Bankr. D. Md. Apr. 20, 1994) (Derby) (“[I]t is consistent with the premises of Chapter 13 that a debtor’s income from all sources, including income from exempt assets, be included in the determination of disposable income. . . . Income is different from property of the estate, and there is nothing in Chapter 13 to suggest that the income to support a plan must be property of the estate. . . . [R]egular income to qualify a debtor for Chapter 13 may include welfare, pension and social security income.”), rev’d on other grounds, 67 F.3d 1128 (4th Cir. Oct. 23, 1995) (Widener, Wilkinson, Michael); In re Schnabel, 153 B.R. 809 (Bankr. N.D. Ill. Apr. 23, 1993) (Katz) (Social Security benefits are included in projected disposable income for purposes of the test in § 1325(b) without regard to whether such income would be exempt under applicable state or federal law.).


17  In re Schnabel, 153 B.R. 809 (Bankr. N.D. Ill. Apr. 23, 1993) (Katz) (A nondebtor spouse’s Social Security payments are disposable income for § 1325(b) purposes because to hold otherwise would require the debtor’s creditors to “subsidize” the debtor’s spouse’s living expenses. This would be “unfair and unjust, in a joint household,” where the wife’s share of expenses has been accounted for as part of the debtor’s overall living expenses in the Chapter 13 case.).


18  179 B.R. 571 (E.D. Ark. Mar. 22, 1995) (Scott).


19  In re Crowder, 179 B.R. at 574.


20  199 B.R. 165 (Bankr. M.D. Tenn. July 31, 1996) (Lundin).


21  See also In re Cornelius, 195 B.R. 831, 835 (Bankr. N.D.N.Y. Dec. 5, 1995) (Gerling) (“Social Security Income received by the Debtor on behalf of her minor daughter is properly included in the Debtor’s calculation of disposable income.”).