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Unemployment benefits in Chapter 13 bankruptcies

Filing a Chapter 13 bankruptcy petition allows Florida residents to obtain debt relief while retaining their assets. Debtors who take this path must submit a plan detailing how their future income should be used to pay off at least a portion of their debts over a period of either three or five years, but these proposals do not go into effect until they have been reviewed and confirmed by a bankruptcy judge. Individuals or married couples are expected to reveal all of their current and future sources of income, but there are a few exceptions.

The Bankruptcy Code allows Chapter 13 petitioners to exclude benefits received under the Social Security Act from their payment plans. This legislation contains provisions that place certain limits on state unemployment compensation programs, but important matters like eligibility and taxation are left up to the states. This has led to uncertainty about whether or not unemployment benefits should be disclosed on Chapter 13 payment plans, and court rulings on the issue have been inconsistent.

The question was raised again in a case involving a married couple from New Mexico when a Chapter 13 bankruptcy trustee questioned the income listed on their financial disclosure. A bankruptcy judge ruled on March 23 that unemployment benefits paid by the New Mexico Department of Workforce Solutions should have been included in the couple’s payment plan. The judge said that these benefits are not received under the Social Security Act because the eligibility to receive them is determined by state law.

Attorneys with debt relief experience may seek to avoid unnecessary legal delays by drafting Chapter 13 payment plans that are likely to withstand judicial scrutiny. Attorneys could also explain to individuals or married couples thinking of filing a Chapter 13 petition how personal bankruptcy differs from other debt relief options.

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