Unemployment Benefits Included as Income in Ch. 13 Plan

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By Diane Davis

A debtor must include unemployment compensation when calculating “current monthly income” and “disposable income” in a Chapter 13 plan, the U.S. Bankruptcy Court for the District of New Mexico held ( In re Novak , 2017 BL 92598, Bankr. D.N.M., 13-16-11408 JA, 3/23/17 ).

Courts have reached divergent holdings, but the Tenth Circuit and the Tenth Circuit Bankruptcy Appellate Panel haven’t yet addressed the issue, Judge Robert H. Jacobvitz wrote March 23.

Jeffrey and Samara Novak filed for Chapter 13 protection, which allows them to obtain debt relief while retaining their property. To do so, however, the debtors must propose a plan that uses future income to repay all or a portion of their debts over a three- to five-year period.

Shortly after filing bankruptcy, Samara lost her job and began receiving $428 weekly in unemployment benefits from the New Mexico Department of Workforce Solutions.

The debtors argued that Samara’s unemployment benefits were received under the Social Security Act and therefore excluded from the debtor’s “current monthly income calculation.”

The Chapter 13 trustee disagreed.

Exclusion Doesn’t Apply

Bankruptcy Code Section 101(10A)(B) provides that “current monthly income” excludes benefits received under the Social Security Act.

Although many courts have held that unemployment payouts are “benefits received under the Social Security Act,” others have ruled they must be included in the calculation of a debtor’s monthly income, the court said.

New Mexico unemployment benefits aren’t “benefits received under the Social Security Act,” the court concluded. As a result, the Social Security law exclusion doesn’t apply, the court said.

The Workforce Solutions Department administers New Mexico’s unemployment system and state law determines eligibility for benefits, the court said.

The Social Security Act leaves great latitude to the states to decide important issues such as the rate of tax and eligibility. Some limitations for a state’s unemployment compensation laws are found in the SSA, and others under federal law, the court said. The state pays benefits to claimants under and according to state law, the court said.

Michael Edward Lash, Christopher L. Trammell, P.A., represented the Novaks; Trustee Kelley L. Skehen represented herself.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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