How Filing for Bankruptcy Can Affect Social Security Disability Benefits


This guest post is from the Oak View Law Group.

It is unfortunate that people who are disabled and incapable of earning adequately often face difficulty in mitigating their financial obligations. Those who are recipients of Social Security disability benefits often opt for debt settlement services in order to deal with their alarming debt issues. However, people who have foreclosures and excessive debts are often left with no other options than filing for bankruptcy. If you are going through a similar situation, and feeling worried how filing for bankruptcy can affect your Social Security disability benefits, you can seek expert advice from a bankruptcy attorney who might be able to help you to preserve your rights as a recipient of Social Security benefits under the bankruptcy code.

Social Security Disability Benefits

The federal government began Social Security Disability Insurance in 1956. It is intended to aid the employees who are unable to work due to a certain physical or mental disability. To enroll in Social Security disability insurance, the applicant needs to meet certain criteria, such as the person should be in such critical medical condition that will prevent him or her from working for at least one year; or, the person must be suffering from a fatal disease that could lead to death. The person must have worked for a stipulated period of time prior to becoming disabled. This working period varies depending on the person’s current age. Social Security Disability Benefits help people cover their basic living expenses. 42 U.S.C. §407 of the Social Security Act declares Social Security Benefits as a payment that can not be levied, attached, or garnished in any way. After this declaration it is quite clear that creditors are not allowed to retrieve a person’s Social Security Benefits to pay off the debts.

The Median Income Test Calculations

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a means test is conducted to determine whether the person qualifies for Chapter 7 bankruptcy. A person with an income that is the same or less than the state’s median income level for his or her household size are permitted to file for Chapter 7 bankruptcy. The person’s living expenses are also taken into account to check whether they qualify for Chapter 7 under the means test. However, the Social Security Benefits are not counted among his household income for median income or means test purposes, and therefore it is not at all regarded as a factor in calculating whether a person is eligible for Chapter 7 bankruptcy.

Claiming Exemptions

If an individual claims exemption in a bankruptcy case, the trustees have no right to take possession of his or her assets or liquidate them to pay off the creditors. Exemptions are allowed in a person’s source of income or the type of assets that are indispensable to maintain a certain standard of living. According to the Bankruptcy Provision 11 U.S.C. §522, the debtors have the legal right to receive disability benefits and those benefits are exempt. People usually have the liberty to choose between state or federal bankruptcy exemptions, depending on the state where the bankruptcy is filed.

Chapter 7 and Chapter 13 Bankruptcy

Social Security Disability Benefits are not taken into consideration when a person files for a Chapter 7 bankruptcy. Nevertheless, the benefits are a matter of concern when the debtor files for a Chapter 13 bankruptcy. Here, if the debtor fails to cover the Chapter 13 payments plan, the trustee gets access to the debtor’s Social Security benefits and regards it as a source of income. To avoid this situation it is always better to inform the bankruptcy court of the exact amount of disability benefits you receive each moth and claim the applicable exemption for the Social Security benefits you are entitled to in the bankruptcy case.

If you are planning to file for bankruptcy and Social Security disability benefits at the same time, seek help from both a Social Security disability lawyer and a bankruptcy lawyer before filing any paperwork. This will enable your lawyers to understand your financial situation in detail and provide you with the best possible assistance in this regard.

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