Social Security Checks Sacred in Indiana Bankruptcy Law

March 9, 2013 4:28 pm Published by

According to the U.S. Bankruptcy Code (on which the new bankruptcy laws of Indiana are based), Social Security income is not to be included in a debtor’s disposable income.  And that is a very good thing.

Consumer Bankruptcy News, one of the many professional journals I read in order to offer my readers and clients the most updated Indiana bankruptcy information, tells how this rule was tested in a Wisconsin case:

  • The debtor filed a Chapter 13 debt repayment plan, calculating how much disposable income he could use towards paying his creditors.  He left off the $1,940 he was receiving each month in Social Security benefits.
     
  • The bankruptcy trustee argued that, since the debtor stood to receive more than $87,000 from Social Security over the debt repayment plan period, that income should have been included in disposable income and used towards paying down debt.
     
  • The case went to a higher court, which ruled that the Social Security money did NOT need to be counted in the disposable income used to pay debts.

Since I was asked, several years ago, to help write the exemptions portion of Indiana bankruptcy law, I found this story especially interesting, and wanted to share it with my Bankruptcy in Indiana readers. After all, one important aspect of the work that I, along with my Indianapolis, Anderson, Richmond, Bloomington and Columbus bankruptcy lawyer colleagues is preparing the paperwork that calculates debtors’ disposable income. In fact, every good bankruptcy lawyer in Indiana works to help clients take advantage of the legal bankruptcy exemptions, because that’s what often makes it feasible for clients to complete their plans and emerge from bankruptcy!

In the case I’m describing, the higher court seemed to agree with that line of thinking, saying  the following about Social Security income:
 “It is income the Bankruptcy Code expressly allows him to exclude.”

Money in 401K retirement plans is another example of money protected from creditors. Since the idea of bankruptcy is to give citizens a chance to make a fresh financial start, all kinds of employer retirement plans are protected from creditors in order to help provide financial security in people’s later years.

Whether in Wisconsin or Indiana, bankruptcy exemptions are meant to “shield the safety net”, helping honest debtors get back on their financial feet as soon as possible!

 

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This post was written by Mark Zuckerberg

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