Opinion ID: 151910
Heading Depth: 2
Heading Rank: 3

Heading: Conflicting Statutes

Text: The conflict between the applicable bankruptcy statutes and 42 U.S.C. § 407 is readily apparent. Section 407, in its original form, expressly declared, none of the moneys paid or payable . . . shall be subject to . . . the operation of any bankruptcy or insolvency law. 42 U.S.C. § 407 (1939). In contrast, under the Bankruptcy Code, all legal or equitable interests of the debtor in property are deemed to be property of the bankruptcy estate. 11 U.S.C. § 541(a)(1). The Bankruptcy Code does not expressly reference § 407 or exclude social security income from property of the estate, but instead provides certain exemptions, which may, or may not, permit the debtor to exempt social security proceeds. The inconsistency between § 407 and the Bankruptcy Code is most transparent under Chapter 13 of the Bankruptcy Code, which was designed, in part, to expand relief under the Bankruptcy Code to social security recipients. See United States v. Devall, 704 F.2d 1513, 1516 (11th Cir.1983) (reasoning, [b]ecause 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); Toson v. United States, 18 B.R. 371, 373-75 (Bankr.N.D.Ga.1982) (recognizing the conflict between Chapter 13 of the Bankruptcy Code and the Social Security Act, distinguishing Chapter 13 cases from bankruptcy filings under other chapters, and concluding enactment of the Bankruptcy Code partially repealed the anti-assignment provisions of the Social Security Act, 42 U.S.C. § 407). Chapter 13 also invests bankruptcy courts with the power to order any entity from whom the debtor receives income to pay all or any part of such income to the trustees. 11 U.S.C. § 1325(c). This provision also conflicts with § 407 under circumstances where a court orders the SSA to send a debtor's social security payments to the bankruptcy trustee. See In re Buren, 725 F.2d at 1081. Due to these inconsistent provisions, courts have struggled to determine when social security proceeds should be included in a debtor's bankruptcy estate. Some courts have held Congress implicitly repealed 42 U.S.C. § 407 by enacting the Bankruptcy Reform Act of 1978. See Devall, 704 F.2d at 1518; Toson, 18 B.R. at 373 (listing cases). The Eleventh Circuit determined, in Walker v. Treadwell (In re Treadwell), 699 F.2d 1050, 1052 (11th Cir. 1983), that § 407 is merely an exemption provision which the debtor must affirmatively claim. As a consequence, debtors who elect the state and federal exemptions other than those set forth in 11 U.S.C. § 522(d) may use 42 U.S.C. § 407 to preclude both past and future social security payments. See Treadwell, 699 F.2d at 1052. Under the Eleventh Circuit's interpretation, § 407 is inapplicable to those debtors who elect the exemptions set forth under 11 U.S.C. § 522(d). See id. This creates an unusual result because debtors choosing the exemptions listed in § 522(d) may exempt future social security payments under 11 U.S.C. § 522(d)(10)(A), but no protection is provided to social security payments which have already been received by the debtor. In 1983, Congress reacted to court decisions limiting the scope of the Social Security Act by amending § 407. Congress added subsection (b) which states, No other provision of law, enacted before, on, or after April 20, 1983, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section. 42 U.S.C. § 407(b). [2] This amendment did little to clarify the interplay between § 407 and the Bankruptcy Code, and courts have failed to interpret the applicable provisions consistently. Compare In re Lazin, 217 B.R. 332, 334 (Bankr.M.D.Fla.1998) (finding 42 U.S.C. § 407 is an exemption provision, which may be claimed, only so long as the debtor does not also claim the exemption under 11 U.S.C. § 522(d)); with In re Frazier, 116 B.R. 675, 678-79 (Bankr. W.D.Wis.1990) (holding 11 U.S.C. § 522(d)(10) should be interpreted as exempting both past and future social security payments in an effort to harmonize § 407 with the Bankruptcy Code).