§ 12.8 — Unemployment Benefits, Strike Benefits and the Like

Revised: April 26, 2016

[1]

It is not a contradiction in terms that unemployment benefits may constitute regular income for eligibility purposes under §§ 109(e) and 101(30).1 In contrast to the “wage earner” concept of former Chapter XIII, courts interpreting the regular income requirement of the 1978 Code have found that even unemployment benefits may be sufficiently regular and stable to fund a Chapter 13 plan.2

[2]

Unemployment benefits are usually fixed in duration—typically 26 weeks or less. A debtor who proposes to fund a Chapter 13 plan from unemployment benefits will have to prove the amount and duration of the benefits and that there is some other source of income at the end of the benefits period to complete the plan. The unemployed debtor should show efforts toward finding a job and, if the debtor is merely laid off, some indication when the debtor is likely to be recalled. Unemployment benefits are at best interim regular income to fund the plan until the debtor is again employed.

[3]

Unemployment benefits may be funded in whole or in part by the federal government. After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),3 unemployment benefits may be considered Social Security benefits that are excluded from the projected disposable income test at confirmation because they are excluded from “current monthly income” by § 101(10A)(B).4 That unemployment benefits may be excluded from disposable income at confirmation should not pollute the issue whether those same unemployment benefits are “regular income” for eligibility purposes. When Congress enacted § 101(10A) and amended § 1325(b) to exclude Social Security benefits from the projected disposable income test, Congress did not amend § 101(30) or § 109(e) to exclude Social Security benefits—in the form of unemployment benefits or otherwise—from regular income for eligibility purposes. It is sound statutory construction that a debtor includes unemployment benefits in income to establish eligibility notwithstanding that unemployment benefits may be excluded from disposable income at confirmation.5

[4]

A debtor unemployed because of a labor action may have a temporary source of income from a union strike fund. If the amount, regularity and probable duration of strike benefits are sufficient to fund a Chapter 13 plan, such benefits may constitute regular income for eligibility purposes. As with unemployment benefits, the debtor will have to produce the best evidence available of the stability of the benefits and the likelihood that there will be an income source after benefits are exhausted. The debtor is best advised to seek temporary employment during the strike. Evidence of when a job action is likely to end may be speculative, but bankruptcy courts can be expected to understand the temporary nature of the financial problems caused by labor-management disputes. Chapter 13 can be very effective in managing those problems. It is also often true that there will be some delay before strike benefits begin. This information must be shared with the trustee and creditors to maximize the probability of surviving an eligibility challenge and confirming a plan.

[5]

When a labor problem develops at a major plant or production facility, it is not unusual for several individuals to seek Chapter 13 relief at about the same time. In such situations, the credit community and trustee become focused on the problem, sometimes relieving debtor’s counsel of the need to prove the circumstances in individual cases. Creditors can expect special attention from the trustee in monitoring the payment of strike benefits and more immediate action at the end of the benefits period to ensure that a permanent source of income is supplied.


 

1  11 U.S.C. §§ 109(e) and 101(30) are discussed in § 11.1  What Is Regular Income?.

 

2  See In re McMonagle, 30 B.R. 899 (Bankr. D.S.D. June 3, 1983) (Ecker); In re Overstreet, 23 B.R. 712 (Bankr. W.D. La. Oct. 15, 1982) (Smallberger).

 

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

 

4  See 11 U.S.C. § 101(10A)(B), discussed in § 36.19  Form 122C-1: Statement of Current Monthly Income and § 92.3  Current Monthly Income: The Baseline.

 

5  See § 92.3  Current Monthly Income: The Baseline for further discussion of exclusion of Social Security benefits from the projected disposable income test.