Can I keep my social security disability if I file bankruptcy?
Whether or not your Social Security benefits will be protected in bankruptcy will depend on whether or not you file Chapter 7 or Chapter 13 bankruptcy, whether your benefits are Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), or private or state pension program payments, whether you are receiving ongoing payments or a lump sum payment, and the types of bankruptcy exemptions allowed in your state.
Chapter 7 Bankruptcy and Social Security Benefits
Chapter 7 bankruptcy is considered a liquidation bankruptcy, which means the trustee assigned to your bankruptcy case will have the legal right to take your nonexempt assets and sell them to repay your creditors. If you have filed Chapter 7 bankruptcy and you are receiving some type of pension or disability benefit it is likely most of your benefits will be protected by the bankruptcy exemptions in your state.
For instance, Social Security Disability Insurance or SSDI benefits are generally protected by law, which means you may be allowed to keep your SSDI payments. The general assumption is that most debtors will need their SSDI payments to support themselves and their families.
What if you receive a lump sum payment for past SSDI benefits owed? You may also be allowed to keep these payments, but there are exceptions to this rule. In some cases the trustee may be allowed to take a percentage of the payment. Talk to your bankruptcy lawyer about the laws in your state, how you can protect your lump sum payments, and how to calculate the amount which exceeds the cost for your basic care, support, and maintenance.
What about if you are receiving SSI benefits? Supplemental Security Income (SSI), unlike SSDI benefits, are specifically for individuals who are disabled, blind, or aged, who cannot work, and who have very limited income and resources. If you receive SSI benefits, including lump sum back payments, these funds are protected and will not be included in your bankruptcy.
Receiving benefits from State, Private, or Other Programs
If you receive any type of pension or disability benefits from state or private sources they could be protected when you file for Chapter 7 bankruptcy, but this will depend on the bankruptcy exemption laws in your state. Federal and state bankruptcy laws will generally allow individuals to keep a certain portion of their benefits, but the exact amount varies by state.
Chapter 13 Bankruptcy and Social Security benefits
Chapter 13 bankruptcy does not require a trustee to take your assets and sell them to repay your creditors. Instead, if you file Chapter 13 bankruptcy, you will be required to create a debt repayment plan to repay all or a portion of your debts.
If you file Chapter 13 bankruptcy and you are receiving disability or retirement benefits the court may consider the benefit payment as income, which means it could increase the amount of money you have to pay unsecured creditors through your Chapter 13 debt repayment plan. If you are receiving any type of income this money must be disclosed at the time you file Chapter 13 bankruptcy on the appropriate bankruptcy schedules.
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If you have been injured or you are disabled you can apply for disability benefits immediately. Before you file, however, you need to make sure you meet the basic nonmedical requirements for Social Security Disability Insurance.