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Recent Chapter 13 bankruptcy appeal might set a precedent

On Behalf of | Feb 14, 2016 | Chapter 13 Bankruptcy, Firm News

The Adoption Assistance and Child Welfare Act of 1980 was established to provide funds to families who adopt special needs children who are in foster care. A woman who filed a Chapter 13 bankruptcy was receiving payments of approximately $1,422 per month under the Act. It might surprise Florida readers that the bankruptcy court originally ruled that those payments could be included in the calculation of her disposable income.

Disposable income is the amount of income a filer has left over after all reasonable expenses are paid. The law states that monies received under the Social Security Act are not included in this calculation. Adoption assistance payments are under the purview of the Social Security Act. Therefore, the woman did not include those payments in her calculation of disposable income.

The trustee insisted that the money should be included in the calculation and was not protected under the Social Security Act. The California woman filed an appeal with the Bankruptcy Appellate Panel for the Ninth Circuit. In its ruling, the court disagreed with the trustee. The court ruled that the payments are protected under the Act and reversed and remanded the bankruptcy court’s decision.

Anyone here in Florida and elsewhere who receives adoption payments under the Act who previously shied away from filing for Chapter 13 bankruptcy for fear that the payments would be considered disposable income might now be able to consider it an option. This decision could set a precedent that protects those payments. Debt can be overwhelming, and having the opportunity to explore all of the possible options for rectifying it can provide some relief.

Source: Bloomberg BNA, “Adoption Assistance Payments Excluded From Ch. 13 Plan”, Diane Davis, Jan. 28, 2016

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