BANKRUPTCY CORNER
BANKRUPTCY CORNER
How Broad in Scope is the Exemption in Social Security Benefits
JASON S . RIGOLI
Social security benefits are generally inalienable under 42 U . S . C . § 407 , which reads in pertinent part :
In general . The right of any person to any future payment under this title shall not be transferable or assignable , at law or in equity , and none of the moneys paid or payable or rights existing under this title shall be subject to execution , levy , attachment , garnishment , or other legal process , or to the operation of any bankruptcy or insolvency law .
42 U . S . C . § 407 ( a ) ( emphasis added ). The purpose of social security is to attempt to limit unforeseen and unpreparedfor events , including old age , disability , poverty , unemployment , and the burdens of widow ( er ) s with and without children and 42 U . S . C . § 407 furthers that goal by protecting the benefits recipient and dependents from claims of the recipient ’ s creditors .
The exemption or exclusion is robust enough that even where social security benefits have been comingled in an account with non-exempt funds the exemption still applies , to the extent readily traceable to the social security benefits . See e . g ., In re Weber , Case No . 2:22-bk-00191-FMD , 2022 Bankr . LEXIS 1994 , 2022 WL 2827474 ( Bankr . M . D . Fla . July 20 , 2022 ). So , what are the limits to the exemption of 42 U . S . C . § 407 ?
Exception in the Eleventh Circuit
The Eleventh Circuit issued its opinion in Citronelle-Mobile Gathering , Inc . v .
Watkins , 934 F . 2d 1180 ( 11th Cir . 1991 ) creating an exception to the exemption in 42 U . S . C . § 407 , holding that “ this circuit has implied an exception to 42 U . S . C . § 407 when the reaching of Social Security benefits is not going to impair the ability of the recipient to satisfy his or her basic needs .” Id . at 1192 . The Bankruptcy Court for the Central District of Illinois questioned Citronelle in In re Franklin , 506 B . R . 765 ( Bankr . C . D . Ill . 2014 ), holding that
Citronelle was abrogated by Law v . Siegel , 571 U . S . 415 ( 2014 ).
Application of Exemption to Property Purchased with Social Security Benefits
In recent opinions out of the Southern District of Georgia , the Bankruptcy Court , affirmed by the District Court held that property of the debtor which was acquired using funds directly traceable to social security benefits do not continue to enjoy the same protections as the funds held in the debtor-recipient ’ s bank account . In re Bonam , Case No . 22-10340 , 2022 Bankr . LEXIS 3149 , 2022 WL 16749080 ( Bankr . S . D . Ga ., Nov . 7 , 2022 ) aff ’ d 2023 U . S . Dist . LEXIS 123683 . 2023 WL 4588794 ( S . D . Ga . July 18 , 2023 ).
Relying on the plain language of 42 U . S . C . § 407 , the exemption was limited to the “ future payment ” or “ moneys paid or payable .” 2023 U . S . Dist . LEXIS 123683 at * 4 ( quotation marks in original ). The District Court continued , “ read in its entirety [,] Section 407 does not include any language relating to the traceability of social security benefits .” Ibid . ( citing 42 U . S . C . § 407 ). The District Court also relied on Franklin , supra , which held that “ ‘§ 407 does not extend to tangible property purchase with social security benefits .’ ” Id . * 6 ( quoting Franklin , 506 B . R . at 776 n . 8 )).
Conclusion
While the exemption of social security benefits is robust , there are limits that debtor ’ s counsel should consider . In the Eleventh Circuit , whether the debtor can satisfy his or her basic needs should be considered until it is clear that Law v . Siegel has abrogated Citronelle , and that property acquired with social security benefits will not be extended the same exempt status as if the social security benefits were in the debtor ’ s account .
This article was submitted by Jason S . Rigoli , Esq ., Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL
33431 , jrigoli @ furrcohen . com
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