Bankruptcy filing doesn't take away right to receive Social Security payments
Older Americans who are in financial straits may be wary of filing bankruptcy because they believe they will have to give up their Social Security benefits.
Older Americans who are in financial straits may be wary of filing bankruptcy because they believe they will have to give up their Social Security benefits.
Bankruptcy cannot take away Social Security payments, so those who are collecting the benefits - or who are considering filing for Social Security - will not lose their rights to receive the payments.
But as with many aspects of the bankruptcy process, there are still ramifications to collecting Social Security while proceeding with a petition in U.S. Bankruptcy Court.
"Generally, Social Security benefits are exempt from execution, levy, attachment, garnishment or other legal process, or from the operation of any bankruptcy or insolvency law," according to the Social Security Administration.
In short, Social Security benefits based both on age and disability are not allowed to be considered part of an individual's income when it is being calculated for a Chapter 7 Bankruptcy, the most common form of personal bankruptcy. The "means test," or a calculation of all income for the six months previous to filing, is used to determine average income number that the courts will consider, but cannot include Social Security payments.
However, when the court reviews an individual's ability to repay his or her creditors, Social Security benefits are considered part of their monthly income weighed against their monthly household expenses.
In the same way, those filing a personal bankruptcy under Chapter 13, for which the individual will pay back creditors through a court-ordered payment plan over several years, will have their Social Security benefits considered only to determine their ability to make those payments.
"Bankruptcy exemptions cover which assets may be sheltered as part of a bankruptcy filing," states Georgia attorney Jonathan Ginsberg on his BKBlog. "I read the exemption statute as sheltering your right to receive future Social Security benefits, and protecting already received benefits to the extent that is reasonably necessary to provide support and maintenance to the debtor or any dependent of the debtor."
One point of concern that Ginsberg shares with his clients is how lump-sum Social Security benefits received before the bankruptcy was filed are considered by the court. If that money is sitting in the debtor's bank account it will, in all likelihood, be considered an asset. These amounts of concern include Social Security past-due payments from previous months that are paid as a lump sum and are sent to recipients after they file for bankruptcy.
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