Do you receive Social Security Disability (SSDI) benefits and feel by debt? You are not alone. Many of those receiving SSDI benefits find themselves overwhelmed by debt.
Have you thought about filing bankruptcy but do not know how filing may affect your benefits? The exact effect bankruptcy will have on your benefits depends on your financial situation. But, the following information gives you a general understanding of how filing bankruptcy may affect SSDI benefits.
Reporting SSDI Benefits to the Bankruptcy Court
Bankruptcy law requires you to disclose all your income on your bankruptcy petition. You must detail all of your current monthly income on the Schedule I form of the bankruptcy petition. This includes your income from SSDI benefits. Failing to report your SSDI benefits could cause your petition to be rejected.
How SSDI income affects your bankruptcy petition and vice versa depends upon the chapter of bankruptcy you file.
Social Security Disability Benefits and Chapter 7 Bankruptcy
To qualify for Chapter 7 bankruptcy, you must not have the means to pay back your unsecured creditors. Congress enacted the “means test” to calculate a debtor’s ability to pay back unsecured creditors. The “means test” averages your previous six months of income, minus certain allowed expenses, and compares it to the median income of your state. If your income averages below the median, you could qualify for Chapter 7 bankruptcy. Although you have to report your SSDI income on the bankruptcy Schedule I form, they do not calculate it in with your income for the “means test”.
As for your SSDI benefits, those you will receive in the future are safe in a Chapter 7 bankruptcy. But, the bankruptcy court could consider previously received benefits as part of the bankruptcy estate if you have them co-mingled with other money in a bank account. It is best to keep your SSDI benefits in a separate account.
Social Security Disability Benefits and Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, you will repay your creditors in full, or in part, through a court-structured repayment plan. The repayment period lasts 3–5 years. The bankruptcy court requires you to contribute all your disposable income to paying your repayment plan. They calculate your disposable income by subtracting your necessary living expenses from your current monthly income, which is the average of all the income you received in the six months before you file bankruptcy. Whether they include your SSDI income in the disposable income calculation depends upon the court jurisdiction in which you live.
Getting Help Filing Bankruptcy While on Disability
Understanding how the Social Security and bankruptcy laws work together can be complicated. It may benefit you to get the help of an experienced bankruptcy attorney. You do not want a lack of knowledge about how bankruptcy may affect your disability benefits, causing you to jeopardize your benefits.
Brock and Stout’s bankruptcy lawyers have over 25 years of experience guiding clients through the bankruptcy process. Contact us today for a free evaluation of your financial situation and let us see if we can help you get the financial fresh start you need.