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Will Bankruptcy Affect My Social Security?

Bankruptcy can be a powerful tool for debt relief. If you are considering bankruptcy, but you receive Social Security benefits, there are some things you might want to be aware of. According to federal law, Social Security benefits are exempt in bankruptcy cases. Both the Social Security Administration as well as bankruptcy courts uphold this. However, there are some situations in which your benefits may be affected.

Chapter 7 vs Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 bankruptcy have different but equally valuable uses, depending on your situation. Social Security also relates to them differently.

Chapter 7 bankruptcy helps those who cannot afford unsecured debt. When applying for this type of bankruptcy, you must report any income you received within the six-month period before filing. Social Security benefits received before or after filing are protected and do not have to be included when reporting income. However, you might risk losing your benefits if Social Security and other income are combined. Any benefits received can also be used to determine your ability to pay back debts.

Chapter 13 bankruptcy allows you to keep your assets while you repay your creditors according to a payment plan. Depending on your situation, repayment may either be in full or partial. A court will include your benefits in deciding whether you can afford the required payments. Your benefits will not be used to repay your creditors. If Social Security is your sole income source, it will be difficult for you to qualify for Chapter 13.

Lump Sum Payments and Social Security

If you receive a lump sum payment, your funds are protected by the same laws that protect regular payments. They are, however, affected by the same standard as commingled funds. If you deposit payment in an account with other funds, a trustee may argue that it has been commingled. This could mean that the Social Security payment is no longer protected.

The trustee is more likely to argue this if the payment is a large one. This is because they have more to gain with a larger lump sum payment. Keeping Social Security funds separate may make it easier for you to protect your benefits.

The best way to protect your benefits is to ensure they are deposited in a separate bank account. Even if the funds were not protected, you may be able to protect a portion of them through a cash-on-hand or wildcard exemption.

Where can I Find Bankruptcy Help Near Me?

Bankruptcy is an amazing tool for getting out of debt. We at Parker & DuFresne have decades of experience helping the people of Jacksonville, Florida. Contact us today to schedule a free bankruptcy consultation!

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