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A common question during bankruptcy is if social security payments will be garnished to pay off creditors. Below we discuss how social security is handled during both Chapter 7 and Chapter 13 bankruptcies.

What is Social Security?

Social Security is a program that is meant to provide funds as a form of economic security for the public. The United States Social Security program was established in 1935 and provides old age, disability, and survivors insurance, in additional to supplemental security income to elderly or disabled people.

Is Social Security Income Exempt in Bankruptcy?

SSD and SSI income is exempt when you file for bankruptcy, meaning creditors cannot garnish your benefits for unsecured or secured debt, and bankruptcy trustees in most cases cannot access these funds.

However, the government can still garnish your Social Security benefits for child support, alimony, back taxes, student loans, etc.

Is Social Security Benefits Considered Disposable Income in a Chapter 7?

When you apply for Chapter 7 bankruptcy, you are first required to take a means test that is based on the amount of income you receive. It is then determined if you have “the means” to pay back unsecured creditors. If you are receiving Social Security benefits, you are not required to include that source of income during your Chapter 7 means test.

The means test will require you disclose all income from all sources, except Social Security benefits, that you have received during the six-month period prior to filing the bankruptcy. This income is then used to calculate what is called a current monthly income, or CMI. Social Security benefits do not count as income for means test purposes, so you will not be required to list the amount of Social Security income you receive.

You Are Still Required to Disclose Social Security Income

While you do not need to disclose your Social Security income in the means test, you will need to disclose the amount on Schedules I of the bankruptcy paperwork. Schedule I and Schedule J are two forms that are needed for Chapter 7 bankruptcy.

  • Schedule I: snapshot of current income at the time you file bankruptcy.
  • Schedule J: list of current expenses.

It should be noted that if your budget shows that you are receiving a large amount of disposable income every month, you can still be disqualified from being able to file for Chapter 7. This can happen even if you pass the means test.

Because this can be a complicated process, you should work with a bankruptcy attorney to determine the best form of bankruptcy you should file for.

Often times, people do not qualify for Chapter 7, but do qualify for Chapter 13.

Does Social Security Count as Disposable Income in Chapter 13?

While more courts are increasingly allowing debtors to keep Social Security payments in Chapter 13 bankruptcy, it will depend on where you file for bankruptcy.

All income, including your Social Security income, needs to be disclosed on your Chapter 13 bankruptcy petition and schedules. All disposable income is required to be contributed to the repayment plan. The higher the amount of disposable income you have, the more you are required to pay unsecured creditors.

Each State Has Different Rules on Social Security Income

Federal appellate courts have ruled that social security income should not be included in your current monthly income (CMI) if you live in the following states: Arkansas, Colorado, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, or Wyoming.

Working with a Bankruptcy Attorney

Bankruptcy law can be hard to understand. As you can see, there are a number of restrictions when it comes to filing bankruptcies. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have.

A bankruptcy attorney might also be able to prescribe options that keep you out of having to declare bankruptcy in the first place. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible.

Contact us today for a free consultation. 

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