When disability benefit recipients investigate bankruptcy as a debt solution problem, they are naturally worried about how a filing will affect their income. How much of an impact bankruptcy has on your disability payments will depend on which chapter you file and how the payments are structured.
- Social Security Disability Insurance (SSDI): Bankruptcy laws generally protect SSDI benefits from seizure, as the assumption is that you need the money to support yourself while you are unable to work. However, if you receive a lump sum payment, your trustee may claim it unless you can prove that it came from SSDI.
- Supplemental Security Income (SSI): Because SSI disability benefits are strictly intended for those with low income and few assets, all payments (including lump sums that can be traced to their source) are exempt from seizure under federal law.
In New York, state and federal bankruptcy exemptions tend to protect SSDI and SSI benefits, but if you have received or expect to receive back payments in a lump sum, be prepared to trace and prove the source to protect it from being seized.
In a Chapter 7 bankruptcy, practically all of your property becomes part of the bankruptcy estate, meaning that your trustee can seize nonexempt assets and sell them to satisfy creditors. This is a preferred option for debtors who have little to no personal property that isnâ€™t protected by a bankruptcy exemption.
Filing for Chapter 13 allows you to keep your assets in exchange for paying back either all or a percentage of your debts through a court-approved repayment plan. Those with a number of secured debts, such as a mortgage or car loan, and who stand to lose more by filing for bankruptcy tend to go with this option.
Should you file?
Many people whose sole source of income is either Social Security Disability or Social Security Retirement wonder if they need to file at all since they are essentially judgment proof. Creditors can sue them and obtain judgments, but these cannot be enforced against Social Security income or bank accounts that only contain money from this source.
Even those who are judgment proof still opt to file for reasons like the following:
- They have secured debts that a Chapter 13 filing will enable them to make current
- Stop creditor harassment
While there may be no way that creditors can garnish or income or seize assets you donâ€™t have, many people welcome the peace of mind that a clean financial slate represents. If your sole or primary income is from Social Security and you have high debt levels that you have no means of repaying, contact a New York bankruptcy attorney to review your options and receive the advice that results in the best decision for your circumstances. To learn more about filing bankruptcy and getting a fresh financial start, call the law office of Jayson Lutzky, P.C. Set up an in-office free initial consultation at 718-329-9500. Mr. Lutzky has more than 33 years of experience representing clients in a variety of legal matters. Visit www.MyNewYorkCityLawyer.com to learn more.