U.S. v. Devall

• Decision Date: 16 May 1983
• Docket Number: No. 82-7073,82-7073
• Citation: 10 B.C.D. 815,704 F.2d 1513
• Parties: 8 Collier Bankr.Cas.2d 663, 10 Bankr.Ct.Dec. 815, Bankr. L. Rep. P 69,205, 1 Soc.Sec.Rep.Ser. 389 UNITED STATES of America, Plaintiff-Appellant, v. Janice E. DEVALL, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1513

704 F.2d 1513

8 Collier Bankr.Cas.2d 663, 10 Bankr.Ct.Dec. 815,

Bankr. L. Rep. P 69,205, 1 Soc.Sec.Rep.Ser. 389

UNITED STATES of America, Plaintiff-Appellant, v. Janice E. DEVALL, et al., Defendants-Appellees.

No. 82-7073.

United States Court of Appeals, Eleventh Circuit.

May 16, 1983.

William Kanter, Civ. Div., Appellate Staff, Dept. of Justice, Frank A. Rosenfeld, Washington, D.C., for plaintiff-appellant.

Ball, Ball, Duke & Matthews, Samuel Kaufman, Montgomery, Ala., for defendants-appellees.

Appeal from the United States District Court for the Middle District of Alabama.

Before TJOFLAT, HILL and JOHNSON, Circuit Judges.

JAMES C. HILL, Circuit Judge:

The sole issue raised by this appeal is whether the Social Security Administration is subject to bankruptcy court income deduction orders that require payment of all or some portion of the debtor's social security benefits to a trustee in bankruptcy. We hold that the Social Security Administration is required to comply with such orders.

This is a consolidated appeal of ten cases in which individuals filed voluntary petitions for relief under Chapter 13 of the Bankruptcy Code. 11 U.S.C. Sec. 1301, et seq. All of the individuals involved receive social security benefits either under Title II of the Social Security Act, 42 U.S.C. Sec. 401, et seq., which provides benefits for retirement and disability, or under Title XVI of the Act, 42 U.S.C. Sec. 1381, et seq., which provides supplemental security income. As part of their Chapter 13 plans, each debtor listed social security benefits as regular income, and in each instance the bankruptcy court issued an income deduction order to the Social Security Administration, requiring that a portion of each debtor's benefits be sent directly to the Chapter 13 trustee. The Social Security Administration appealed the orders to the district court, arguing that they violated the provisions of the Social Security Act that specifically exempt benefits paid under Titles II and XVI from the "operation of any bankruptcy or insolvency law." 42 U.S.C. Secs. 407, 1383(d)(1). The district court, however, affirmed each of the orders relying primarily on the reasoning of the bankruptcy court and the decision of In re Buren, 4 B.R. 109 (Bkrtcy.M.D.Tenn.), aff'd, 6 B.R. 744 (D.M.D.Tenn.1980), involving the identical issue. ¹

Known as the "anti-assignment" provision, section 207 of the Social Security Act, 42 U.S.C. Sec. 407 provides:

The right of any person to any future payment [of Social Security benefits] shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

However, section 1325(b) of the Bankruptcy Reform Act of 1978 states that upon confirmation of a debtor's plan, "... the court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee." 11 U.S.C. Sec. 1325(b). Moreover, the Bankruptcy Code's definition of "entity" makes clear that the provision for income deductions applies to government agencies such as the Social Security Administration. ² The conflict is therefore apparent. The Social Security Act's anti-assignment provision purports to prohibit the assignment of social security benefits, with very limited exceptions, ³ while the Bankruptcy Code purports to authorize direct income deductions from the Social Security Administration. Upon review, we conclude that the provision of the later-enacted Bankruptcy Reform Act must prevail over the more general anti-assignment provision of the Social Security Act.

The purpose of a Chapter 13 plan is "to permit an individual to pay his debts and avoid bankruptcy by making periodic payments to a trustee under bankruptcy court protection, with the trustee fairly distributing the funds deposited to creditors until all debts have been paid." S.Rep. No. 95-989, 95th Cong., 2d Sess. 12, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5798. Under the original Bankruptcy Act, Chapter 13 plans were restricted to wage earners. Thus, one of the primary defects of the old law was that "it [did] not permit some individuals with regular income to qualify, such as small business owners or social welfare recipients, because their principal incomes do not come from wages, salary, or commissions." Id. at 13, 1978 U.S.Code Cong. & Ad.News at 5799. To remedy this defect, Congress modified the code so that any "individual with regular income" could file a voluntary petition for relief under Chapter 13. 11 U.S.C. Sec. 109(e). The legislative history of the Bankruptcy Reform Act clearly indicates that the purpose of this modification was to "permit almost any individual with regular income to propose and to have approved a reasonable plan for debt repayment based on that individual's exact circumstances." S.Rep. No. 95-989, at 13, 1978 U.S.Code Cong. & Ad.News at 5799. Moreover, "[e]ven individuals whose primary income is from investments, pensions, social security or welfare may use chapter 13 if their income is sufficiently stable and regular." H.Rep. No. 95-595, 95th Cong., 1st Sess. 119, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6080 (emphasis supplied). ⁴

Because it is evident that Congress anticipated social security recipients could use Chapter 13, it follows that social security benefits are properly included in the debtor's Chapter 13 estate, which is defined as "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. Sec. 541(a)(1). Any doubt that social security benefits are included in the estate, and are therefore subject to income deduction orders, is eliminated by the provision of the Bankruptcy Reform Act that expressly allows the debtor to exempt social security benefits from the estate, 11 U.S.C. Sec. 522(d)(10)(A). Section 522 states in relevant part:

(d) the following property may be exempted [from the debtor's estate] under subsection (b)(1) of this section: ...

(19) the debtor's right to receive--

(a) a social security benefit, unemployment compensation, or local public assistance benefit.

This exemption would be meaningless had Congress not intended social security benefits to be estate property in the first instance. In re Buren, 6 B.R. at 747.

The Social Security Administration nevertheless maintains that the voluntariness of a Chapter 13 plan, and the debtor's ability to exempt social security benefits, are irrelevant in determining whether the Administration must comply with income deduction orders because the Social Security Act's anti-assignment provision (section 407) precludes even voluntary assignments. In support of this position, the Administration cites Philpott v. Essex County Welfare Board, 409 U.S. 413, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973). In Philpott, the Supreme Court held that the "all-inclusive" language of section 407 precluded the state from reaching social security disability benefits even though the beneficiary had agreed to the assignment to reimburse the state for public assistance he had received. Initially, Philpott is distinguishable because the instant case involves a later-enacted statute which manifests a clear congressional intent to modify restrictions on the transfer of benefits. In re Buren, 6 B.R. at 747. Moreover, despite the "all-inclusive" language of section 407, we have on two recent occasions rejected application of the statute "where the statutory objective of preserving essential resources for the debtor could not have been effectuated." In re Treadwell, 699 F.2d 1050, 1053 (11th Cir.1983); see also Department of Health and Rehabilitative Services, Florida v. Davis, 616 F.2d 828 (5th Cir.1980).

By insulating social security benefits from assignment or seizure, section 407 attempts to insure that recipients have the resources necessary to meet their most basic needs. H.R.Rep. No. 92-213, 92d Cong., 1st Sess. 156 (1971); In re Treadwell, 699 F.2d at 1053; see Department of Health and Rehabilitative Services, 616 F.2d at 831. Thus, when the assignment has the effect of denying the debtor basic resources, section 407 is properly invoked. E.g., Philpott v. Essex County Welfare Board, 409 U.S. 413, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973). However, when the debtor's ability to care for himself or herself is not implicated, section 407 need not be applied. E.g., In re Treadwell, 699 F.2d 1050 (11th Cir.1983) (debtor fraudulently conveyed benefits to his daughter for no consideration); Department of Health and Rehabilitative Services, Florida v. Davis, 616 F.2d 828 (5th Cir.1980) (incompetent debtor, living in a state-run facility, could not use benefits to support himself).

In the present case, the assignment of funds to the trustee will not affect the recipients ability to secure basic care and maintenance. As one bankruptcy judge has explained:

A debtor in a Chapter 13 case who chooses to provide for repayment of his debts from his Social Security benefits is unlike an ordinary assignor in several respects. First, the plan of debt adjustment must be reviewed and approved by a United States Bankruptcy Judge. In approving the plan, the Court must determine that the debtor will be able to make all payments under the plan and to comply with the plan. 11 U.S.C. Sec. 1325(a)(6). The Court will not approve a plan unless it is clear that the debtor will be able to make these payments, thus perhaps enabling him to retain property which would otherwise be subject to the claims of creditors. Unless the Court has first ascertained that the plan of repayment is feasible and will work no undue hardship on the debtor or his dependents, the plan cannot be confirmed. Second, and perhaps more importantly, Chapter 13 is a wholly voluntary proceeding. A debtor cannot be forced to submit his Social...