Florida Bankruptcy Law Blog

Social Security Income in Chapter 13

I received an email about the treatment in Chapter 13 bankruptcy of money received for basic social security and for social security disability. Social security payments do not count as income for computation of means test eligibility under the new bankruptcy law.. Yet, once someone wants to, or is forced into, a Chapter 13 bankruptcy instead of a Chapter 7 there is a separate income issue. The issue in a Chapter 13 is the amount of the debtor’s disposable income. Debtor’s must pay all disposable income to the Chapter 13 trustee. If the social security payments count as disposable income then the debtor would have to pay more money to his creditors and the trustee during the Chapter 13. I had thought that social security disability money counted for disposable income but that basic social security receipts did not count as income because it was not part of the income definition under the means test.

I posed the question to the Chapter 13 trustee at a recent meeting of creditors. The Trustee stated that in the Orlando Division both basic social security money and disability are taken into account in computing the debtor’s disposable income. He said that there were court rulings in this Division sustaining his position. Interestingly, he said that the law of this question is different in different bankruptcy Divisions around the country. Florida debtors considering Chapter 13 need to check on the rules in their particular bankruptcy court.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Homestead Accounts Not Applicable For Sale After Filing Bankruptcy

I spoke with a person currently involved in a Chapter 7 bankruptcy and is involved in a dispute with the Trustee over her homestead exemption. Prior to filing bankruptcy the debtor listed her house for sale. She filed Chapter 7 bankruptcy, on day of filing, she still resided in her house. She claimed the house as exempt homestead. After filing bankruptcy she sold the house. The Trustee is arguing that the house is not homestead because either the debtor intended to abandon home by putting it on the market or because the proceeds from the sale were not reinvested in another homestead.

Bankruptcy exemptions are determined on date of filing. If an asset is exempt when a debtor files bankruptcy the asset is not part of the bankruptcy estate and the debtor can do with the asset whatever he or she wants to do after the filing. In this case, the debtor occupied the subject property as her homestead on date of filing. If she sold the property after filing she can do what she wants with the sales proceeds. She does not have to reinvest the proceeds in a new homestead.

If, on the other hand, the house were sold prior to filing bankruptcy the sales proceeds would be exempt only if the debtor intended to reinvest the proceeds in a replacement homestead after the sale and on or after date of filing bankruptcy.

There are court decisions which have held that putting a house on the market does not constitute intent to abandon the house. This debtor’s listing of her house should not forfeit her homestead protection.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida