§ 46.8 — Entitlements Programs
Revised: May 21, 2004
Benefits to which a Chapter 13 debtor is entitled under state or federal assistance programs are property of the Chapter 13 estate. For example, unemployment compensation benefits are property of an unemployed debtor’s Chapter 13 estate.1 Payments to a debtor from Aid to Families with Dependent Children are property of the Chapter 13 estate.2 Similarly, the estate includes disability benefits.3
Most benefits payable under entitlements programs are protected by state or federal law from execution or assignment to creditors. In a Chapter 13 case, the debtor can almost always claim the benefits exempt.4 With respect to some entitlements benefits, the anti-assignment provisions of the enabling law are enforceable in a Chapter 13 case and actually exclude the benefits from property of the estate under § 542(c)(2).5 For example, it has been held that the anti-assignment provisions of the Social Security Act exclude social security benefits from the reach of the Chapter 13 estate.6
That entitlements benefits are exempt property in a Chapter 13 case or are excluded from the estate altogether has mistakenly led some courts to conclude that entitlements benefits are not regular income for eligibility purposes7 or are not projected disposable income at confirmation of a Chapter 13 plan.8 As discussed in detail elsewhere,9 there is no condition in the Bankruptcy Code that an entitlements benefit be property of the estate for that benefit to be considered income for eligibility or confirmation purposes.
1 Michigan Employment Sec. Comm’n v. Jenkins, 64 B.R. 195 (W.D. Mich. 1986).
2 In re Hammonds, 729 F.2d 1391 (11th Cir. 1984). Accord In re Howell, 136 B.R. 120 (Bankr. W.D. Pa. 1991) (Citing In re Hammonds, 729 F.2d 1391 (11th Cir. 1984), § 1325(c) authorizes bankruptcy court order to the Commonwealth of Pennsylvania to distribute a portion of the debtors’ AFDC benefits to the Chapter 13 trustee.), aff’d, 138 B.R. 484 (W.D. Pa. 1992).
3 In re Howell, 4 B.R. 102 (Bankr. M.D. Tenn. 1980). See also Gullett v. Continental Casualty Co. (In re Gullett), 230 B.R. 321 (Bankr. S.D. Tex. 1999) (Workers’ compensation benefits are property of the Chapter 13 estate notwithstanding that benefits may be exempt under Texas law; insurance carrier for employer violated stay by continuing to litigate with the debtor after the petition, by deducting overpayments from postpetition benefits and by exercising a disputed recoupment after the petition.).
4 See § 49.1 [ Available and Important in Chapter 13 Cases ] § 48.1 Available and Important in Chapter 13 Cases.
6 See Hildebrand v. Social Security Admin. (In re Buren), 725 F.2d 1080 (6th Cir. 1984). See also § 9.5 [ Social Security ] § 12.5 Social Security.
7 See § 8.1 [ What Is Regular Income? ] § 11.1 What Is Regular Income?.
8 See § 164.1 [ Projected (Disposable) Income ] § 91.2 Projected (Disposable) Income.