Opinion ID: 430537
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Heading: the bankruptcy reform act of 1978

Text: 13 Chapter 13 of the Bankruptcy Code enables an individual to develop a plan under court supervision for the repayment of debts over an extended period of time. In a Chapter 13 repayment plan, unlike a Chapter 7 liquidation, a debtor may retain his property by agreeing to repay his creditors. 14 The benefit to the debtor of developing a plan of repayment under chapter 13, rather than opting for liquidation under chapter 7, is that it permits the debtor to protect his assets. In a liquidation case, the debtor must surrender his nonexempt assets for liquidation and sale by the trustee. Under chapter 13, the debtor may retain his property by agreeing to repay his creditors. Chapter 13 also protects a debtor's credit standing far better than a straight bankruptcy, because he is viewed by the credit industry as a better risk. In addition, it satisfies many debtors' desire to avoid the stigma attached to straight bankruptcy and to retain the pride attendant on being able to meet one's obligations. The benefit to creditors is self-evident: their losses will be significantly less than if their debtors opt for straight bankruptcy. 15 H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 118 (1977), reprinted in [1978] U.S.Code Cong. & Ad.News 5787, 5963, 6079 (House Report). 16 Incorporating recommendations from scholars, legislators and bankruptcy judges who worked under the aegis of the Bankruptcy Commission, the 1978 Code was a comprehensive rewriting of federal bankruptcy law. Its history makes clear that one of Congress' major goals was to expand the class of debtors eligible to utilize Chapter 13. Under prior law, only a wage earner--defined by the old Code as an individual whose principal income is derived from wages, salary, or commissions 1 --could proceed under Chapter 13. The new Code extended eligibility to any individual with regular income, 11 U.S.C. Sec. 109(e), defined as [an] individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under Chapter 13 ... 11 U.S.C. Sec. 101(24). Congressional reports state that the purpose of section 101(24) 17 ... is to expand substantially the kinds of individuals that are eligible for relief under chapter 13, Plans for Individuals with Regular Income, which is now available only for wage earners. The definition encompasses all individuals with incomes that are sufficiently stable and regular to enable them to make payments under a chapter 13 plan. Thus, individuals on welfare, social security, fixed pension incomes, or who live on investment incomes, will be able to work out repayment plans with their creditors rather than being forced into straight bankruptcy. Also, self employed individuals will be eligible to use chapter 13 if they have regular income.... 18 House Report at 311-12, 1978 U.S.Code Cong. & Ad.News at 6269; S.Rep. No. 95-989, 95th Cong.2d Sess. 24 (1978), reprinted in [1978] U.S.Code Cong. & Ad.News 5787, 5810 (Senate Report). 19 Consistent with section 101(24), Congress broadened the definition of property of the estate to include 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), and all property of the kind specified in [Sec. 541] ... that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted ... 11 U.S.C. Sec. 1306(a)(1). The bankruptcy court was given broad powers to 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). 2 20 Nowhere does the Code state that this definition of estate was meant to repeal section 407. Title III lists ten pages of other federal statutes that the Code repeals or modifies without mentioning section 407, Pub.L. 95-598, Nov. 6, 1978, 92 Stat. 2673, 2673-82; 11 U.S.C.A. at pp. 121-32, and the legislative history contains evidence that Congress knew that only an express provision could void the anti-assignment provisions of federal benefit statutes. 3 21 Rather, the argument that social security benefits must be paid to the trustee regardless of the language of section 407 rests on a complicated construction of other provisions of the Code. Congress created mandatory and voluntary exemptions from the debtor's estate of property that would otherwise be included. Section 541(c)(2), for example, provides that the Code does not override the provisions of spendthrift trusts. Sections 522(b)(2)(A) and 522(d)(10) permit debtors to voluntarily omit social security benefits from their estates. Section 522(b)(2)(A) allows them to retain any property that is exempt under Federal law ... Section 522(d)(10) states: 22 The following property may be exempted under subsection (b)(1) of this section: 23 (10) The debtor's right to receive-- 24 (A) a social security benefit, unemployment compensation, or a local public assistance benefit; 25