Exempt Income in Bankruptcy Cases Expanded

09/11/2014 (press release: SourceStreamMedia) // Virginia Beach, VA, USA // John G. Merna, Esq.

The U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division issued a ruling this week expanding the definition of what income is exempted from consideration when determining what type of bankruptcy an individual may file or how much they will repay.  Prior to the ruling, only Social Security benefits were exempt from calculation in the qualifying test, called the “Means Test.”  As a result of the ruling, retirement income from foreign governments may also qualify to be excluded from the qualifying test.

In the case In re McPhee, No.13036046-KRH, slip op. (E.D. Va. Aug. 26, 2014) the Chapter 13 trustee filed an objection to the debtors’ plan of reorganization on the grounds that the debtors failed to include income received from their Canadian Old Age Security (OAS) benefits, a Canadian government-sponsored retirement plan similar to the United States’ Social Security system. The trustee maintained the commonly held position that the Bankruptcy Code only permits the exclusion of Social Security benefits from the calculation of current monthly income.

Attorney Chad L. Edwards of The Merna Law Group, P.C., argued otherwise for the debtors. Edwards cited a treaty signed between the United States and Canada in 1981 and ratified by Congress in 1984 that provides for the equal treatment of each country’s social benefits. The court ultimately agreed that the treaty placed the foreign retirement benefits on an equal footing with Social Security benefits under bankruptcy law.

In his Memorandum Opinion, Judge Kevin R. Huennekens stated “that a Treaty in effect between the United States and Canada mandates reciprocal treatment of government retirement benefits between the two countries.”

“This case demonstrates the need to look beyond the bankruptcy code for guidance, even on issues that may seem fairly settled,” said Edwards. “I was told by many bankruptcy trustees that we wouldn’t win because the bankruptcy code was clear on the subject.  But the truth is that the bankruptcy code is only a small part of federal law. We, as attorneys, have to look at other federal statutes, cases, and even treaties in some cases to truly understand the law’s full application.”

To view the full Memorandum Opinion issued by the court in this case, visit http://www.mernalaw.com/bankruptcy/virginia-bankruptcy-information-center/in-re-mcphee/.

About The Merna Law Group, P.C.: Established in 2003, The Merna Law Group is one of the premier bankruptcy law firms in Virginia. Winners of more than 35 Awards for Excellence over the past 7 years, their expert attorneys have represented thousands of clients in successful bankruptcy and divorce cases and are recognized as some of the best bankruptcy attorneys in the state. Firm founder and lead attorney, John G. Merna has also served as past President of the Tidewater Bankruptcy Bar Association. The Merna Law Group operates under the founding philosophy that meeting an attorney need not be an impersonal, confusing or judgmental experience for clients. The firm maintains offices in Virginia Beach, Newport News and Richmond. Learn more about The Merna Law Group, P.C. by visiting their website at www.mernalaw.com or calling them at 800-662-8813.

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