Beaulieu v. Ragos (In re Ragos)

Summarized by Steven Holmes , Cavazos Hendricks Poirot, PC
13 years 4 months ago

Citation:

Beaulieu, v. Ragos (In re: Ragos), Case No. 11-31046 (5th Cir. October 29, 2012)

Tag(s):

Ruling:

Social Security income should not be included in a Chapter 13 debtor’s projected disposable income and may be excluded from the debtors’ plan payments. The debtors' retention of exempt social security benefits was alone insufficient to support a finding of bad faith.

Procedural context:

On direct appeal from the United States Bankruptcy Court for the Eastern District of Louisiana pursuant to 28 U.S.C. § 158(d)(2). The Chapter 13 Trustee objected to confirmation of the Debtors’ plan because Debtors did not dedicate 100% of their social security income to the plan for payment to creditors Accordingly, the Trustee argued that the plan was not proposed in good faith. The Bankruptcy Court rejected the Trustee’s arguments, based upon the court’s interpretation of express language in the Social Security Act, the definitions within the Bankruptcy Code and congressional intent collectively requiring the exclusion of social security benefits from the calculation of disposable income.

Facts:

The Trustee relied upon § 1325(b)(1)(B) to contend that all “projected disposable income,” including all social security benefits, must be contributed toward plan payments. The Court based its decision on the bankruptcy code’s definitions of “disposable income” (Section 1325(b)(2)) and “current monthly income” (Section 101(10A)(A)) and, most importantly, the fact that section 101(10A)(B) expressly excludes Social Security benefit from the statutory definition of a debtor’s “current monthly income.” In short, the Court reasoned that the Bankruptcy Code’s exclusion of Social Security income from a debtor’s “disposable income” means that Congress did not intend for it to be included in a Chapter 13 debtor’s “projected disposable income” and may be excluded from plan payments. The Court also relied upon express language within the Social Security Act and related legislative history, concluding that Congress clearly intended to exclude social security benefits from the bankruptcy process. The Trustee was unable to present any evidence to rebut the presumption that social security benefits should be excluded from the debtors’ income and contributions to plan payments. Because the Trustee’s good faith argument was premised entirely upon the exclusion of social security benefits, the Court quickly resolved that issue, stating that “it is apparent that Debtors are not in bad faith merely for doing what the Code permits them to do.”

Judge(s):

Davis, Dennis and Haynes

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