Opinion ID: 151910
Heading Depth: 2
Heading Rank: 4

Heading: Proper Resolution

Text: The Sixth Circuit, in In re Buren, 725 F.2d at 1085-87, conducted a thorough analysis of the impact of § 407 on the Bankruptcy Code. In re Buren involved seven consolidated cases in which debtors receiving social security disability payments filed voluntary petitions under Chapter 13. See id. at 1081. In each case, the debtor informed the bankruptcy court the social security benefits constituted regular income, as required to qualify for Chapter 13. See id. The bankruptcy court ordered the government to send the social security benefits directly to the trustee, and on appeal, the district court affirmed. See id. The Sixth Circuit reversed, concluding § 407 specifically prevents judicial intrusion into the benefit payment process, and Chapter 13 was never intended to allow bankruptcy courts to compel the [SSA] to pay debtor's social security benefits directly to the trustee. Id. at 1086, 1087. The Sixth Circuit noted the Bankruptcy Code explicitly repealed and modified numerous statutory provisions, yet failed to include § 407 in the list of those provisions. See id. at 1085, 1087. The Sixth Circuit criticized the district court's finding that to interpret § 407 to prohibit the taking of social security proceeds would [r]emove[ ] social security recipients from the purview of Chapter 13. Id. at 1085 (quoting In re Buren, 6 B.R. 744, 749 (M.D.Tenn.1980)). The appellate court reasoned that § 407 leaves unimpaired Congress' desire to open Chapter 13 to social security recipients, because, [a]s a practical matter, a willing debtor can simply sign his check over to the trustee. Id. at 1086; see also Combustion Fed. Credit Union v. Barron (In re Barron), 85 B.R. 603, 607 (Bankr.N.D.Ala. 1988) (The removal of the court's power to enforce a benefits deduction order against the [SSA] does not prevent a debtor from consummating a successful plan of reorganization under [Chapter 13], under which the debtor would make payments to the trustee.). Although Carpenter's case here involves a Chapter 7 bankruptcy, as opposed to a Chapter 13 bankruptcy, we believe In re Buren is instructive. As recognized by the Sixth Circuit, § 407 does not contain any qualifying language. It explicitly demands that no past or future social security payments may be subject to the operation of any bankruptcy law. See 42 U.S.C. § 407(a). Section 407 also instructs that it is not to be limited by any other provision of law, without express reference to § 407. See id. § 407(b). If we were to hold, as the bankruptcy court did in this case, that § 407 is a mere exemption which may not be claimed if the debtor instead elects the exemptions set forth in 11 U.S.C. § 522(d), then we would also be interpreting § 407 contrary to the express language of § 407, saying the scope of § 407's protection is limited. See In re Barron, 85 B.R. at 606. This interpretation of the intent of Congress is untenable because the language of the statute expresses an intent that social security benefits are to be encapsulated with a total shield from the bankruptcy laws. Id. We therefore hold, in accord with the BAP's decision, that § 407 operates as a complete bar to the forced inclusion of past and future social security proceeds in the bankruptcy estate. See Carpenter II, 408 B.R. at 246-49; see also In re Buren, 725 F.2d at 1086 (noting social security payments only become part of a debtor's estate if he chooses to include them). We conclude § 407 must be read as an exclusion provision, which automatically and completely excludes social security proceeds from the bankruptcy estate, and not as an exemption provision which must be claimed by the debtor. [3] See 42 U.S.C. § 407; 4 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy ¶ 522.09[10][a] n.76 (16th ed. 2010) (Congress amended 42 U.S.C. § 407 to clarify that the inalienability of Social Security benefits was not repealed by the Bankruptcy Code, so that such benefits should not even become part of the bankruptcy estate.). [4]