Does Bankruptcy Affect Social Security Income?

The thought of bankruptcy scares a lot of people. The concept brings up images of losing everything and never being able to get credit again. While those fears are not always correct, people that rely on Social Security income have the added fear that those funds can be used in bankruptcy to help pay off creditors.   

This is not the case, but you want to make it clear to the bankruptcy court and the trustee supervising your case that the funds in question are from your Social Security account. You may even want to have your Social Security funds deposited in a dedicated account so that the SSA money is not commingled with any other income you have.  

If debt is overwhelming you in or around Tampa, Florida, and you are considering bankruptcy as a way to clear your debts and attain a fresh start in life, contact The Law Offices of David K. Blazek, P.C. for reliable legal assistance. The attorney will discuss your financial concerns and advise you of the best options under the bankruptcy code. We will then help you navigate the system until you put your past behind you and begin afresh in life.   

The Law Offices of David K. Blazek, P.C. proudly serves clients not only in and around Tampa but also in Miami, Jacksonville, and Orlando, Florida, as well as in Atlanta, Macon, and Columbus, Georgia. 

Bankruptcy and Social Security

Section 207 of the Social Security Act states:  

"The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law."  

The law, however, does provide for two exceptions: to pay past-due federal taxes and to enforce a child support or alimony obligation. Those obligations cannot be discharged through bankruptcy anyway, so if you‘re contemplating bankruptcy, you should realize that you generally can only discharge unsecured obligations, such as credit card and personal loan debts. Secured debts for cars and homes are another matter depending on the type of bankruptcy protection you seek. 

Commingling Social Security Income

The best way to protect your Social Security income is by having it deposited in a separate banking account. If your retirement funds are commingled with other funds, such as income from work, the trustee handling your filing may think the funds are equally available for the bankruptcy plan you’re pursuing. To avoid any confusion, having your Social Security funds in a dedicated account can certainly help. 

Chapter 13 Bankruptcy and Social Security

A Chapter 13 bankruptcy is called “the wage-earners plan.” Under Chapter 13, the petitioner calculates their disposable income after all living expenses have been met and then uses that money to make a monthly payment to creditors through the bankruptcy court and the trustee overseeing the case.   

The payments continue for three to five years, depending on your income and credit obligations. Your Social Security income, however, cannot be touched to make those payments. Meanwhile, you get to keep all your possessions, including your home and car, as long as you stick to the plan and meet your secured-debt obligations. 

Chapter 7 Bankruptcy and Social Security

Chapter 7 is the liquidation plan, which means that the bankruptcy trustee can sell off nonexempt assets to help pay creditors. Depending on the state in which you live, however, there are exemptions to enable you to retain your car and your home up to a certain equity limit.   

There is, in addition, an income means test to qualify for Chapter 7. You have to present the court with a summary of your income for the six months leading up to your filing. If your income for the size of your household falls below the state-mandated level for Chapter 7, you can then proceed. Again, however, the court cannot take your Social Security benefits from you. 

Get Your Questions Answered Today

Filing for bankruptcy can lead to a fresh financial start, but it is not something that should be undertaken without careful consideration. If your debts are overwhelming you, bankruptcy is often the best way to put them behind you so you can move on in life. Depending on your circumstances, a Chapter 7 or a Chapter 13 filing may be the proper course to take.   

The legal team at The Law Offices of David K. Blazek, P.C. stands ready to review your situation with you and advise you of the best option going forward. We will then help you navigate the system to achieve a fresh start in life. Reach out today.