In Re Welsh

Fresh from the 9th Circuit (which is binding on Hawaii Bankruptcy Court) comes the In Re Welsh opinion.

This case settles the question if Social Security income can be required to be paid into a Chapter 13 plan, establishing that Social Security income may be excluded from such a plan. Normally in a Chapter 13, you create a budget including all income and all expenses. The excess amount in the budget becomes your plan payment.

For example, lets say you have work income of $800 a month, Social Security income of $2000 a month and expenses of $1000 a month. In a Chapter 13 case without Social Security income, you would expect a plan payment of $1,800 a month ($800+$2,000-$1,000). But with this decision, you could propose a $100 month payment since all the money paid into the plan would come from Social Security income. There may be other reasons to propose a higher plan payment, but you wouldn’t be required to do it.

Another interesting tidbit from this opinion is the following:

We conclude that Congress’s adoption of the BAPCPA forecloses a court’s consideration of a debtor’s Social Security income or a debtor’s payments to secured creditors as part of the inquiry into good faith under 11 U.S.C. § 1325(a).

This could be a boon to debtors with a lot of secured debt. Third car loan? Boat loan? Motorcycle loan? No problem. The previous rule was the Chapter 13 Trustee or creditors could object to your Chapter 13 plan if you proposed to continue paying secured loans on “luxury” items at the expense of unsecured creditors. This part of the opinion seems to eliminate that possibility.

But in everything bankruptcy, always be guided by the bankruptcy golden rule, “pigs get fat, hogs get slaughtered.”

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