Bankruptcy Lawyer | Bankruptcy and Receiving Social Security (Pt.1)

Bankruptcy Lawyer | Bankruptcy and Receiving Social Security (Pt.1)

Bankruptcy Lawyer | A common question during bankruptcy is if social security payments will be garnished to pay off creditors. Below we discuss how social security is handled during both Chapter 7 and Chapter 13 bankruptcies.

What is Social Security?

Before we discuss how Social Security is treated in Chapter 7 and Chapter 13 bankruptcies, it’s important to review what Social Security is.

Social Security is a program that is meant to provide funds as a form of economic security for the public. The United States Social Security program was established in 1935 and provides old age, disability, and survivors insurance, in additional to supplemental security income to elderly or disabled people.

This money is accrued through employers and employees through Social Security taxes. Money raised from this tax program is then primarily used to provide benefits to US citizens who have reached retirement age or are otherwise currently eligible. The amount a citizen receives as their Social Security benefits is based on the amount of Social Security taxes he or she has paid over the course of their working career. This means that those who have had larger incomes tend to get greater Social Security benefits. Social Security also pays a disproportionate amount to people who have earned low incomes.

Chapter 7

When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.

During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors.  Just because your assets are being sold, that does not mean that all of your property needs to be sold.

Social Security and Chapter 7

When you apply for Chapter 7 bankruptcy, you are first required to take a means test that is based on the amount of income you receive. It is then determined if you have “the means” to pay back unsecured creditors. If you are receiving Social Security benefits, you are not required to include that source of income during your Chapter 7 means test.

Means Test

The means test will require you disclose all income from all sources, except Social Security benefits, that you have received during the six-month period prior to filing the bankruptcy. This income is then used to calculate what is called a current monthly income, or CMI.

If your CMI is less than the median income for your specific state’s median income for a similar household, you will automatically pass the means test. This means that your household – amount of family members and income – will be compared to what the state has deemed as a similar household’s income. A family of four’s income will be compared to a family of four’s income.

If your CMI is above the median income, that does not mean you fail the means test. In most cases, the bankruptcy petitioner will just need to answer more questions on the means test in order to qualify.

Social Security benefits do not count as income for means test purposes, so you will not be required to list the amount of Social Security income you receive.

Disclose Social Security Income in Budget

While you do not need to disclose your Social Security income in the means test, you will need to disclose the amount on Schedules I of the bankruptcy paperwork. Schedule I and Schedule J are two forms that are needed for Chapter 7 bankruptcy.

Schedule I: snapshot of current income at the time you file bankruptcy.

Schedule J: list of current expenses.

It should be noted that if your budget shows that you are receiving a large amount of disposable income every month, you can still be disqualified from being able to file for Chapter 7. This can happen even if you pass the means test.

Because this can be a complicated process, you should work with a bankruptcy attorney to determine the best form of bankruptcy you should file for.

Often times, people do not qualify for Chapter 7, but do qualify for Chapter 13.

Chapter 13

Chapter 13 bankruptcy is designed to allow you to keep all of your property, but is also determined by the type of property you own. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans. During Chapter 13, you repay creditors in full, or in part, during a Chapter 13 repayment plan. That plan typically lasts from three to five years, and at the end of the repayment period, your debts are discharged. – Simon Resnik

Specializing in bankruptcy and foreclosure law for over 20 years. Call attorney David Pinkston for a free consultation today: 904.306.5791. #FloridaBankruptcyAttorney #FloridaBankruptcy

If you are thinking about #bankruptcy or #foreclosure in the Jacksonville, Florida area, you should call attorney David Pinkston. David is very experienced with all aspects of bankruptcy law yet very personable and easy to talk to. Call Us Today! 904.306.5791