If you are considering filing for bankruptcy protection and you receive Social Security benefits, you are probably wondering how your benefits will be impacted. In short, the law protects your Social Security benefits and you will not lose them in your Chapter 7 or Chapter 13 case. However, your benefits can have an impact on your filing.
In a Chapter 7, Social Security benefits that are based on your age or disability are not considered part of your income. This is important because your income under the means test determines your eligibility to file a Chapter 7 bankruptcy. Also, your benefits cannot be used to pay your creditors, but they can be considered in determining your ability to repay your creditors.
If you file a Chapter 13 case, your Social Security benefits will be considered by the court to determine your ability to make the monthly Chapter 13 plan payments . However, your benefits should not be used to actually pay your creditors. In other words, if Social Security benefits are your sole source of income, it can be difficult to qualify for a Chapter 13 filing, so you should confer with us to discuss your options.
Finally, you should understand that your Social Security benefits can be considered by the court as an asset of your bankruptcy estate if you receive a lump sum payment of benefits. A lump sum payment may occur when your benefits from prior months are paid all together. If a lump sum payment is deposited into your bank account, it is likely the trustee will consider a portion of it as an asset of your estate if it exceeds the amount needed for your basic living necessities.
If you are planning to file a Chapter 7 or Chapter 13 and you are receiving Social Security benefits, there are certain steps you can take that are helpful in ensuring that you hold onto your benefits. For example, you should have your Social Security benefits paid into a dedicated bank account that holds only those benefits and no other funds. If your benefits are not commingled with other funds it helps the trustee identify the exact amount that is protected.
If you are interested in learning more about how a bankruptcy filing will impact your Social Security benefits or your debt, contact Faro Crowder, PA to schedule an appointment.