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Bankruptcy's Impact On Social Security Benefits

Posted By admin || 11-Nov-2011

Bankruptcy's Impact On Social Security Benefits

Bankruptcy and Social Security Benefits

Debtors receiving or applying for social security benefits are often concerned that filing for bankruptcy will place those benefits at risk. But under provisions in the bankruptcy code and clarification reiterated by Congress, social security benefits and entitlements are not placed in jeopardy when a debtor files for bankruptcy.

Social Security And The Means Test

Some bankruptcy courts have ruled that social security benefits cannot be used to determine whether a debtor qualifies for Chapter 7 bankruptcy . But even if social security benefits are used to determine a debtor's ability to pay, the actual benefits cannot be used by the bankruptcy court to order payments to a creditor. For example, if a debtor in Chapter 13 bankruptcy has income of $3,000 and $1,000 of that income is derived from social security benefits, creditors do not have a right to receive payment from that $1,000. The converse is also true, even if the majority of a debtor's income is derived from social security is remains protected in bankruptcy.

Social Security Disability

The right to apply for and receive social security disability benefits is not impacted by a debtor's bankruptcy status. Because receiving social security disability payments can take up to 3 or 4 years, a debtor should begin the process immediately even if they are just filing for bankruptcy. If the debtor is in the middle of a Chapter 13 bankruptcy when they receive approval for their social security disability benefits, the extra income will not force an increase in their monthly payments. But once the social security payments begin the debtor must inform both their bankruptcy attorney and the trustee of the change in their income while in bankruptcy.

Considering Bankruptcy? We Can Help

Reed Allmand is Board Certified in Consumer Bankruptcy by the Texas Board of Legal Specialization. He is the managing partner of the law firm Allmand Law and NACBA's State Chair for the Northern District of Texas. He has been practicing bankruptcy law for nearly 10 years and has handled more than 3,000 bankruptcy filings. Allmand has appeared on 'Money for Breakfast' on Fox Business News and is the author of "The Truth about Bankruptcy." To speak with Mr. Allmand or to schedule an interview, contact us today.
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