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Protection Of Social Security Benefits Applauded By Bankruptcy Attorneys

WASHINGTON, April 1, 2013 /PRNewswire-USNewswire/ -- An appellate decision that protects Social Security benefits from creditors seeking to strip bankrupt consumers of every possible cent is good news that is entirely consistent with what Congress intended, according to the National Association of Consumer Bankruptcy Attorneys (NACBA).

In re Welsh, the Ninth Circuit Court of Appeals shielded Social Security benefits from creditors. NACBA, represented by the National Consumer Bankruptcy Rights Center, had filed an amicus curiae brief asking the court to honor the clear directive of Congress that these benefits, vital to so many elderly and disabled individuals, be protected from creditors and chapter 13 trustees eager to squeeze every last cent out of debtors who have suffered financial hardships. 

NACBA President Ed Boltz said: "We are gratified that the court recognized that Congress wanted to protect these benefits from creditors, as it has done historically since the Social Security Act was passed."

The Ninth Circuit Court of Appeals joined the Fifth and Tenth Circuits in holding that it was not bad faith for a debtor to decline to devote social security income to paying unsecured creditors in a chapter 13 plan.  The court rejected a chapter 13 trustee's argument that this allowed the debtor to have money left over that could be used to pay creditors, stating that:  "Congress chose to remove from the bankruptcy court's discretion the determination of what is or is not 'reasonably necessary.' It substituted a calculation that allows debtors to deduct payments on secured debts in determining disposable income." 

In the wake of the onerous credit-sponsored amendments to the Bankruptcy Code passed in 2005, creditors and chapter 13 trustees have aggressively argued that Congress intended that debtors pay every last possible cent to creditors in chapter 13 cases.

"This decision showed that there are still some limits on what courts can extract from struggling debtors, and leaves those debtors with at least some benefits that cannot be touched," said Boltz.

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