What Happens to Social Security Disability Benefits in Bankruptcy
While Social Security Disability may help with finances, all too many times it falls well short of what you need to satisfy the financial commitments you were able to meet when you were working. If your debt becomes too large and debt settlement services are no longer an option, filing for bankruptcy protection may seem to be your only course of action. The question of how a bankruptcy affects your Social Security disability benefits is one that you need to consider carefully.
The Bankruptcy Code offers two options to individuals: a chapter 7 liquidation or a chapter 13 repayment plan. Social Security Disability benefits won’t be lost as a result of filing under either a chapter 7 or chapter 13, but you will definitely need an experienced attorney who knows the proper procedures to ensure that your benefits are protected.
Social Security Disability Benefits in Chapter 7 Bankruptcy
In a chapter 7 bankruptcy, the debtor turns over all non-exempt property to a bankruptcy trustee who converts the property to cash to make distributions to creditors. A chapter 7 bankruptcy is available to individuals who meet what is called the “median income test,” which was instituted in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act. Basically, the median income test compares your income to the median level of income for someone with a household of similar size to yours and in your state. If your income is equal to or less than the median level, you are eligible to file a bankruptcy under chapter 7. For the purposes of a chapter 7, Social Security disability benefits are not considered when determining your income level.
Social Security Disability Benefits in Chapter 13 Bankruptcy
A chapter 13 bankruptcy reorganizes your debt by allowing you to pay creditors some or all of what you owe through a payment plan. A bankruptcy trustee oversees the plan by collecting payments and fairly distributing them to creditors. Under a Chapter 13 case, Social Security disability benefits are included in the court’s calculations when they determine whether or not you can meet the monthly payments required by the monthly payment plan; however, they should not be used by the trustee to pay your creditors. So, if those benefits are your only source of income, you may not qualify for a chapter 13.
The Role of the Bankruptcy Trustee
Under either a chapter 7 liquidation or a chapter 13 repayment plan, a trustee is appointed to oversee the bankruptcy process and the repayment of creditors, if applicable. Some of your assets are available to the trustee, but some can be claimed as exempt. A trustee is not allowed to take exempt assets to pay off creditors. An attorney will help you determine what assets can be claimed as exempt, and will likely classify your Social Security disability benefits as exempt in order to prevent them from being viewed as income available to the trustee to pay creditors.
Lump Sum Social Security Disability Benefits in Bankruptcy
If you were paid a lump sum amount in Social Security disability benefits, that sum may be viewed as property of your bankruptcy estate, because the larger amount may be seen by the trustee to be more than the amount you need for your basic monthly care and support. The trustee could suggest that the amount above what would be needed for your basic needs should be considered as part of your estate and therefore available to pay your creditors.
Some attorneys suggest that you deposit your Social Security disability benefits in an account which is only used to hold those benefits. Keeping the Social Security disability payments separate from your other funds is helpful in protecting them from being considered monies available to pay your creditors.
Bankruptcy law is extremely complex, and there are a lot of things to consider in terms of protecting your assets. If you are planning to file for bankruptcy protection, it is vital to first seek the advice of an experienced bankruptcy attorney. Our Long Beach attorneys have the necessary experience to guide you to take appropriate actions to protect your Social Security disability benefits.
Long Beach Social Security Attorneys
If you or a loved one is unable to work due to a disabling injury, medical condition or disease our skilled and experienced lawyers are here to help you get the maximum Social Security Disability benefits for which you qualify.
The Law Office of Cantrell Green is a group of highly qualified and experienced disability attorneys who have obtained millions of dollars in Social Security Disability benefits for thousands of clients in Long Beach, Orange County and the greater Los Angeles. Our lawyers care about every client, and fight tirelessly to obtain the benefits you deserve.