Bankruptcy and Special Needs FamiliesMore families who have special needs children or other disabled dependents are considering bankruptcy.  Because a disability can become financially draining, causing families to rack up hundreds of thousands of dollars in debt, bankruptcy is often a good choice.  Whether the family member is blind, deaf or has some other physical or cognitive disability, special needs families can benefit from both Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Filing bankruptcy when you have a special needs family:

  1. Your bankruptcy case will not be impacted if you decide to apply for your disability benefits via social security before filing bankruptcy.  So please do not delay filing for social security, Medicaid or any other social program that will help you family financially.
  2. When a debtor files for bankruptcy Social Security disability benefits are NOT included in the calculations when determining the household median income.  In other words you Social Security disability benefits income will not be used when taking the means test to determine if you qualify for Chapter 7 bankruptcy.
  3. However, if a debtor files for Chapter 13 bankruptcy, your Social Security disability benefits may impact how much disposable income you have available to repay your debts.  If during the course of you Chapter 13 bankruptcy your Social Security disability benefits increase or decrease your bankruptcy attorney may need to modify your bankruptcy repayment plan.

When a debtor with a special needs family is considering bankruptcy, they must consider the long-term implications of how the disability will impact their finances.  For example, if the debtor has a child with a disability, the parents may need to provide for the child over the course of their lives which can be financially draining.  It is advisable to discuss this reality with a financial advisor and your bankruptcy attorney to find out how you can maximize the benefits of bankruptcy so that the needs of your disabled family member has minimum impact on the household’s long-term financial picture.