Massachusetts Bankruptcy Lawyer

A recent federal appeals court decision, U.S. Court of Appeals, 8th Circuit. Carpenter v. Ries, No. 09-2897. July 30, 2010. Lawyers USA No. 993-2148., reinforces a bankruptcy debtor’s right to retain an award of Social Security benefits. Section 522(d) of the Bankruptcy Code allows a debtor to claim as exempt “the debtor’s right to receive . . . a Social Security benefit.” However, the lower court had disallowed this exemption as the debtor received a $17,000 payment for retroactive Social Security disability benefits six months before his filing. These funds were segregated from other assets in a separate bank account. The 8th Circuit found that the exemption did not apply because this case did not involve a “right to receive” benefits, rather the benefits were already paid. On appeal, the court allowed the exemption as Section 407(a) of the Social Security Act “automatically and completely excludes social security proceeds from the bankruptcy estate, and not as an exemption provision which must be claimed by the debtor.”

Preferential payments are basically payments made by a bankruptcy debtor to a creditor not listed on the bankruptcy petition. In order to determine whether debtors filing bankruptcy have given “preference” to certain accounts over the others, the Statement of Financial Affairs requires debtors to list total payments of more than $600.00 made to a single creditor within the ninety days prior to filing bankruptcy. Debtors are also required to disclose any payments made to “insiders,” who would be close family members or friends, within the past year. Any of these payments given preference over other bankruptcy debts are subject to being reversed by the bankruptcy trustee in order to pay creditors listed on the petition. Any recovery that is obtained can be shared by creditors filing a proof of claim with the bankruptcy court.