Chapter 13 Debtors’ Failure To Include Unemployment Benefits Does Not Result In Dismissal

March 31st, 2010 by Reed Allmand

In the Chapter 13 bankruptcy case of Avellandeda, Guillermo and Jenny; In re, the bankruptcy court overruled the trustee’s objection to confirmation of the debtors’ plan.

The details of the bankruptcy case:

The Chapter 13 debtors proposed a 36-month plan that anticipated paying 1 percent of unsecured claims. The debtors scheduled monthly take-home income of $8,156 and expenses of $7,900, leaving $256 a month with which to fund payments under a plan. The reported income included $1,200 in unemployment benefits.

However, when the debtors reported their current monthly income to the bankruptcy court, they failed to include their unemployment insurance payments. It was because of this omission that the bankruptcy trustee objected to the confirmation of the debtor’s Chapter 13 bankruptcy repayment plan.  The bankruptcy trustee insisted that the unemployment insurance income should have been included in the current monthly income calculation.  However, the bankruptcy court ruled against the bankruptcy trustee stating that since the unemployment insurance income would not have placed the debtors over the median income that it was irrelevant.  However, if the inclusion of the unemployment insurance income had placed the debtors over the median income they may have faced problems with their bankruptcy case.

Despite the good fortune of these debtors, other debtors filing bankruptcy should work closely with their bankruptcy attorney to make sure that unemployment insurance income and other “temporary” income is handled carefully during their bankruptcy case.  Because the bankruptcy court did not rule that unemployment insurance could in fact be excluded as would social security benefits, it is possible that another bankruptcy judge could rule very differently.