If you receive Social Security Disability (SSD) benefits and file for bankruptcy, your checks are usually safe. Many state and federal exemptions prevent the bankruptcy court from using your disability income to pay creditors. In certain situations, though, the court might count your benefits as assets toward your bankruptcy. If you find yourself in this situation, you need a disability attorney to fight your case.
The treatment of your SSD benefits in bankruptcy proceedings depends on a few factors:
- Whether your benefits come from Social Security Disability Insurance(SSDI) or Supplemental Security Income (SSI);
- Whether your benefits are a lump sum or ongoing monthly payments; and
- The specific laws of your bankruptcy jurisdiction.
The type of bankruptcy you file matters. The two most common are Chapter 7, which is total bankruptcy, and Chapter 13, which is a repayment plan.
What happens to my disability benefits when I file for Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is total bankruptcy. Though it gives you a fresh start, it can be a painful and grueling process. The court requires you to sell off all your assets—except the bare necessities—and relinquish the proceeds to your creditors. Once the process is complete, your creditors may no longer come after you. You can start rebuilding your financial life.
The question is, do disability benefits count as assets toward paying off creditors, or are they exempt? In most cases, they are exempt. However, it depends on a few factors.
SSDI vs. SSI
The first factor is whether you receive SSDI or SSI. If your benefits come from SSI, which is a welfare program for the needy, they are always exempt. No creditor—not even the IRS—can touch your SSI benefits.
With SSDI, things are not always so cut and dry. SSDI technically counts as income from work, not a government benefit. This is because you pay into SSDI with your payroll taxes while you are working. You cannot receive SSDI benefits unless you have paid a sufficient amount into the system.
Because of this distinction, a few bankruptcy jurisdictions refuse to exempt all your SSDI benefits. These jurisdictions let you keep what they deem is necessary for basic care and sustenance, but make you apply the rest toward your bankruptcy proceedings.
Before filing bankruptcy, speak to a disability attorney at the Disability Advantage Group. We can tell you what to expect in your state and jurisdiction and draw up a plan so you can keep most or all your benefits.
Lump Sum vs. Ongoing Benefits
Another important distinction is whether your benefits come in the form of a lump sum or ongoing monthly payments. If you receive your payments monthly, we can build a strong case that all of your benefits remain in your account. The reason is, as of 2017, the maximum SSDI benefit is only $2,687 per month. We can demonstrate that you need this entire amount for food, shelter, clothing, and incidentals. Even in the toughest jurisdictions, your monthly benefit check should be safe.
Lump sum payments, which are usually a result of past benefits owed to you, can be harder to protect. Some jurisdictions will attempt to earmark a certain amount and require you to put everything beyond that toward the bankruptcy. We can put together a compelling case on your behalf for exempting the entire lump sum.
Are my private disability benefits exempt from bankruptcy proceedings?
Perhaps you bought private disability insurance while working and now receive benefits from your policy. This income does not receive the same level of protection as SSD benefits do. Each jurisdiction has its own protocol for deciding what is and is not exempt. Our job is to fight on your behalf for exempting all or most of your disability benefits, including those from private programs.
What happens to my disability benefits when I file a Chapter 13 bankruptcy?
A Chapter 13 bankruptcy is a repayment plan for debtors with reliable regular income. Instead of selling off your assets, the bankruptcy trustee looks at your income, assets, and obligations, and determines a fixed amount that you must pay each month toward your debt. After a set time, your debt disappears.
You must disclose your disability benefits when listing your income and assets for the trustee. Any portion of your benefits deemed nonexempt counts toward your total income when calculating your monthly payments.
Our disability lawyers can help you keep your benefits.
The attorneys at the Disability Advantage Group, can help you protect your disability benefits during bankruptcy. We can review your situation and build the strongest case possible based on the available evidence. Call us today at 865-566-0800 for a consultation.