If you receive Social Security benefits, bankruptcy provides protection through state exemptions whether you file Chapter 7 or Chapter 13 bankruptcy. Most often the means test helps determine your eligibility when filing, but some states may not calculate your benefits into the test. On the other hand, there are situations in which Social Security benefits may have an effect on your filing for certain reasons.
Each state has multiple exemptions that protect debtor assets upon filing bankruptcy. The protection prevents creditors from seeking personal assets in question and using it toward outstanding debt. Most states offer exemptions regarding Social Security income. Social Security income often includes disability payments, future earnings or a lump sum settlement.
Keep in mind, in some situations a lump sum settlement could be used toward satisfying creditors if it was received within six months before filing your petition. Yet, there are additional exemptions that could be applied to help protect the lump sum payment.
So how does Social Security income impact a Chapter 13 bankruptcy filing? Chapter 13 is a court approved repayment plan that’s based on your income. Your disability income is factored into the repayment structure based on what you have left over after paying necessary monthly expenses. Your payment plan may need to be amended if you receive a disability award or increase.
Whether you’re thinking about filing or ready to file your petition, consult with a qualified bankruptcy attorney to get a clear understanding of which chapter is the best solution for your situation.