One of most complex situations for those receiving, or applying for, social security disability benefits is the need to concurrently file for bankruptcy. Whether you're filing a chapter seven or chapter thirteen bankruptcy, or if you already have, it is important to understand how your discharge will affect your eligibility for social security disability benefits. This article outlines two considerations for those filing chapter seven or chapter 13 bankruptcy, and how a social security attorney can help throughout the process.
In Chapter 7 Proceedings
Chapter 7 bankruptcies are structured in a way that allows the trustee to repossess your nonexempt assets and sell them off to creditors to repay all, or a portion, of your past debts. However, the courts do not generally consider social security disability benefits as nonexempt assets, as they are essential for a debtor's day-to-day living expenses.
At the same time, if you received a lump sum payment for disability benefits, there is the possibility that a portion of that money will be seized and used to repay creditors. While Supplemental Security Income is always beyond the reach of creditors, monies from Social Security Disability Insurance aren't necessarily as safe.
While most jurisdictions will not allow a bankruptcy trustee to claim disability benefits for creditor repayment, it has been done in certain situations. In some cases, the trustee claims that the lump sum amount an individual receives is more than he or she reasonably needs to cover day-to-day expenses. If the courts agree, a portion of your social security income might be levied and used to repay creditors. Enlisting the assistance of a qualified attorney, like those at Horn & Kelley, PC Attorneys at Law, can help ensure that your disability benefits aren't categorized as supplemental income, but rather as a necessity.
In Chapter 13 Proceedings
Social Security Disability benefits are treated slightly differently in chapter 13 bankruptcy filings. Because you are allowed to keep (most of) your assets in a chapter 13 bankruptcy, most people have little trouble holding onto their SSDI benefits during the process. However, you should know that the money you receive might be classified as an asset.
This is an important point, as your repayment plan in a chapter 13 bankruptcy is largely dictated by the assets you retain. If the courts ultimately decide that some or all of your social security benefits are nonexempt, than the amount you are required to repay by law, under the repayment plan, may increase. Having an attorney to help you through these proceedings may ultimately determine whether or not your income is considered an asset or exempt from the bankruptcy process.
In the end, you can take comfort in the fact that most bankruptcy proceedings do not allow for the seizure of social security disability benefits. Nonetheless, retaining legal counsel can help ensure that money you need for living isn't mistaken for expendable income that you don't.