Can Filing for Bankruptcy Affect My Disability Payments?

Many disabled people rely on their Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) payments to live off of when they are unable to work.

Certain changes to a person’s situation, however, could jeopardize his or her ability to continue receiving disability payments. One fear is filing for bankruptcy. Fortunately, most SSDI and SSI payments are generally exempt in bankruptcy. However, there are some exceptions that recipients should know about.

Our attorneys at Dayes Law Firm further discuss how bankruptcy affects federal, state and private disability payments, as well as what you can do to protect your benefits. For answers to your questions and to learn more about Social Security Disability, contact us to schedule a free consultation today.

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Bankruptcy and Federal Disability Payments

If you are receiving disability payments, these benefits are often considered an asset and not income in bankruptcy. Social Security Disability benefits are mostly protected in bankruptcy via federal and state exemptions. Factors that may affect your disability payments by filing for bankruptcy include:

• If you filed for Chapter 7 or Chapter 13 bankruptcy
• If your disability payments are via a federal, state or private program
• If you receive ongoing payments or a lump sum payment for past benefits
• The exemption laws in the state you reside in

Chapter 7 vs. Chapter 13 Bankruptcy

Having to declare bankruptcy is a major decision that can have a long-term impact on an individual’s finances and credit. However, it may come as a major relief for disabled individuals struggling to pay for treatment and other medical-related expenses while trying to support themselves and their families.

In a Chapter 7 bankruptcy case, almost all property (i.e. homes, cars) becomes property of the bankruptcy court. The bankruptcy trustee may sell your nonexempt assets to cover your debts.

In most instances, federal and state exemptions help protect disability payments in Chapter 7 bankruptcy. The bankruptcy trustee cannot access these payments and neither can any creditors. After filing for Chapter 7 bankruptcy, you may still be able to continue receiving Social Security Disability.

In a Chapter 13 bankruptcy case, you may be able to keep your property through a court-mandated repayment plan. Your assets are not at risk of being liquidated. The repayment period lasts from three to five years. By filing a Chapter 13 bankruptcy, you will likely get to keep your disability payments.

Protections and Limitations for SSDI Recipients

Federal laws protect SSDI recipients who file for bankruptcy. Your disability payments will generally not be in jeopardy. However, the bankruptcy court may try to argue that you do not need the full disability payment to meet your basic needs.

If you receive a lump sum payment for past benefits you are owed, you may have to show proof that it was an SSDI payment. These kinds of payments may not be protected from exemption based on where you live. In certain jurisdictions, for instance, a bankruptcy trustee could take a part of your lump sum payment if it is deemed more than the amount needed to cover essential living expenses.

Protections and Limitations for SSI Recipients

Additionally, federal laws protect SSI recipients who file for bankruptcy. Social Security has strict rules on how SSI payments can be used and since the asset limits for SSI are low, most of your assets will likely be deemed necessary to meet your basic needs (i.e. food, clothing and shelter).

The bankruptcy court cannot leave you without enough to support yourself. Even creditors cannot go after your SSI payments. If you receive a lump sum payment for past benefits, these payments will also be exempt in bankruptcy as long as they can be traced back to their source.

State-Sponsored or Private Disability Payments

If you receive disability payments through a state or private program, you will not receive the same protection as payments issued through Social Security.

Every state has its own set of bankruptcy exemptions that may allow someone to keep a certain amount of assets that are off-limits from creditors and the bankrupt trustee. The exact amount will vary based on the state you reside in. This is why it is important to know your state’s exemptions prior to filing.

Contact an Attorney at Our Firm to Learn More

If you are still unsure about how filing for bankruptcy may affect your disability payments, reach out to a qualified Social Security Disability lawyer in Phoenix. He or she can review your situation and discuss your options. Our firm has helped many disability recipients minimize the risk of losing their benefits.

The initial consultation is free of charge. You are not obligated afterward to have us represent you, but if you decide to, it costs nothing up front to use our services.

Proven Track Record. Ph: 1-800-503-2000