Fitzgerald & Campbell Fitzgerald & Campbell

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What Happens to My Social Security Benefits in Bankruptcy?

If you are planning to file a Chapter 7 or Chapter 13 bankruptcy case and you currently are the recipient of Social Security benefits, it is important to confer with your attorney to understand how your benefits will be affected. You should understand that your Social Security benefits will not be lost as a result of your filing; however, your benefits could impact your case.

When you file a Chapter 7, social security benefits that are based upon your age or disability are not considered as income. For many individuals, this is important because it will assist you in qualifying for a Chapter 7 under the “means test.” Also, the funds you receive in the form of benefits will not be considered as income used to pay your creditors, but they may be included by the bankruptcy court in determining your ability to pay your creditors.

When you file a Chapter 13 case, your Social Security benefits will be included in the court’s calculations in determining whether you can afford the monthly payments required by your repayment plan. However, your benefits will not be used to pay your creditors under your plan. Thus, if your Social Security benefits are the only source of income you have, it can be tough for you to qualify for a Chapter 13, so it is crucial that you discuss your options with us.

You should be aware that your Social Security benefits may be considered property of your bankruptcy estate if you are being paid in a lump sum payment of benefits. Lump-sum payments usually occur when you are owed benefits from prior months and they are all paid together. When a large deposit is made into your bank account, the trustee may determine that it is more than the amount you need for your basic care and support, and thus the extra amount should be considered as part of your estate.

If you are planning to file for bankruptcy protection, it is important to take action to protect your Social Security benefits. One of the most important actions you can take is to arrange for your benefits to be deposited into a separate bank account used only to hold your benefits. This helps keep your Social Security payments separate from your other funds, which assists you in protecting them from the bankruptcy trustee.

If you are considering filing a bankruptcy and you need help determining which type of filing would be best for you, contact Fitzgerald Campbell to schedule an appointment. We do not offer just one debt relief option, we don’t push you in one direction. If bankruptcy right for you, we will tell you. If it’s not, we will tell you that. If bankruptcy is your get out of debt plan, it needs to be done right. It needs to be in the hands of experienced lawyers who have been there before. Contact us today!

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