557 B.R. 451
Bankr. W.D. Va.2016Background
- Debtors Sean and Melinda Hite care for their adult, severely disabled son Christian at home; he qualifies for Medicaid waiver benefits to avoid institutionalization.
- Public Partnership, LLC (PP) pays care-provider funds to the Hites under Virginia’s Medicaid waiver program; the Hites reported about $2,502.66 monthly from PP on Schedule I but the trustee estimates about $3,200/month.
- Trustee objected to confirmation under 11 U.S.C. § 1325(b), arguing all PP payments are "current monthly income" and thus must be applied to unsecured creditors during the applicable commitment period.
- Debtors argued PP payments are excluded from current monthly income as "benefits received under the Social Security Act" (11 U.S.C. § 101(10A)(B)) and alternatively as "foster care payments" under § 1325(b)(2).
- The Hites are below-median-income debtors (3-year applicable commitment period); their proposed plan pays a 20% dividend to unsecured creditors. The court held a hearing and issued an oral ruling overruling the trustee; this memorandum explains the reasoning.
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether PP payments are "current monthly income" under § 101(10A) and therefore part of disposable income | PP payments to the Hites must be counted as current monthly income regardless of whether PP (a state-approved payor) issues the checks | PP payments are benefits received under the Social Security Act (Medicaid waiver benefits) and thus excluded from current monthly income under § 101(10A)(B) | The court held PP payments are excluded as SSA benefits and thus are not current monthly income or disposable income |
| Whether PP payments should nonetheless be treated as income because Christian (the beneficiary) could have hired a third-party caregiver | Because the beneficiary can select providers, the payments are effectively income to the Hites and should be included | The family-home caregiving context is distinct; the payments avoid institutionalization and compensate live-in care, so they function as SSA/waiver benefits to the beneficiary, not ordinary income to the Hites | The court rejected the trustee’s "choice/employment" analogy and treated the payments as excluded benefits when paid to live-in family caregivers |
| Whether PP-derived federal tax refund (attributable to PP payments) is disposable income | The refund (stemming from reported PP income) is disposable income unless the underlying payments were excluded | Because PP payments are excluded from disposable income, any related tax refund attributable to those payments is also excluded | The court held the refund is excluded from disposable income because it derives from excluded PP payments |
Key Cases Cited
- Mort Ranta v. Gorman, 721 F.3d 241 (4th Cir. 2013) (describing § 1325(b) requirement that debtor devote projected disposable income during the applicable commitment period to unsecured creditors)
- In re Adinolfi, 543 B.R. 612 (9th Cir. B.A.P. 2016) (holding certain state-administered benefits under statutes enacted within the Social Security Act umbrella are excluded from current monthly income under § 101(10A)(B); persuasive analog for Medicaid waiver benefits)