How Is Social Security Handled During Bankruptcy?

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  2. How Is Social Security Handled During Bankruptcy?
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If you live on a fixed income funded by Social Security benefits, and you are also facing a growing amount of credit card debt, medical debt, or other unsecured debt, bankruptcy may be a practical solution. However, many worry about how bankruptcy affects their Social Security benefits. 

Is Social Security Income Protected During Bankruptcy? 

If you are filing bankruptcy and are worried about your Social Security income, you should immediately know that Chapter 7 bankruptcy does not typically affect your Social Security income. While Social Security counts as “income” for federal tax purposes, it is not counted as “income” for bankruptcy. Certain types of income are almost always protected during bankruptcy, and they include Social Security Disability Insurance, Supplemental Security Income, and Social Security. 

How Is Social Security Income Treated During the Means Test? 

When qualifying for Chapter 7 bankruptcy, petitioners must first pass the means test. The means test determines eligibility by comparing the petitioner’s income to their geographical area’s average income. Means test income levels change about every three months. Social Security income is considered an asset rather than income during bankruptcy, so Social Security income doesn’t count on the means test. While Social Security income does not count as income during the means test, petitioners still need to list it in their bankruptcy paperwork. Working with an experienced bankruptcy attorney can help avoid any trouble later in your bankruptcy case from inaccurately reporting Social Security income to the bankruptcy trustee. 

Avoid Commingling Social Security and Other Types of Income: 

If you mix your Social Security income with funds from other sources, like the wages from a part-time job, the bankruptcy trustee could have questions. In some bankruptcy cases, the judge could declare that the commingled funds are not exempt. If this occurs, the bankruptcy trustee could use the money in the account, force you to pay it back and provide the funds as payment to creditors. To avoid this issue, it is wise to place Social Security income in a separate account from any other funds. The commingling problem is only triggered if you mix Social Security benefits with non-exempt income. 

If you have questions about how to protect your Social Security income during bankruptcy, we can help. Find out how to get a fresh start by filing bankruptcy. Get in touch with Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney as soon as possible.

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