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Bankruptcy and Disability Payments

If you’re considering filing for bankruptcy, you’re probably wondering whether your disability payments will be protected from the court. This question doesn't come with a simple "yes" or "no" answer. In fact, the specifics of your case will go a long way to determining if your benefits are protected.

The following will affect your case: Type of debt you owe, type of disability benefits you receive and what type of bankruptcy you file.

To get specific answers, speak with a local bankruptcy attorney during a free case evaluation. Complete the free form on this page to connect with an attorney today.

Can I Keep My Disability Payments in Bankruptcy?

The answer to this question depends on a couple of factors, including where you live in the country and what type of personal bankruptcy you file for. Personal bankruptcy laws provide two main options, known as chapters, and these will greatly influence how your case proceeds:

  • Chapter 13 bankruptcy: In Chapter 13 cases , filers enter a 3-5 year plan in which they make regular payments to their creditors to repay many of their secured debts. During this time, filers are also required to keep up with any current payments that arise, including mortgage payments. For this reason, it’s important for Chapter 13 filers to have a regular, steady source of income in order to cover these payments. If you receive disability payments because you’re unable to work, Chapter 13 may not be the right choice for you.
  • Chapter 7 bankruptcy: In Chapter 7 cases, filers are offered a complete discharge of many of their unsecured debts, like those tied to credit cards. However, before the court grants this discharge, it attempts to pay back any creditors it can from the filer’s assets. In many states, disability Social Security payments are protected by state law from being used by the bankruptcy court to repay creditors.
Because specific limits vary by state and type of bankruptcy, it’s may be a good idea to speak with a bankruptcy lawyer to get personalized feedback about your specific financial situation.

It is possible that your disability payments are enough to cover your Chapter 13 plan. However, Chapter 7 is the most common type of personal bankruptcy for all filers. If you choose Chapter 7 you'll want to get complete answers as to how the laws in your state will affect your disability benefits, and any personal medical equipment you own. These are often considered assets, and protected by most states.

Would Disability Payments Be Protected in Chapter 7 Bankruptcy?

If you’re receiving disability benefits because you’re unable to work, there’s a chance that Chapter 7 bankruptcy may better suit your needs than Chapter 13. Here’s a look at what might happen in a typical Chapter 7 bankruptcy filing:

  • The means test: In order to qualify for Chapter 7 protection, you need to take the bankruptcy means test, which is used to establish your true need. Chapter 7 is so powerful that lawmakers put this in place to prevent people from abusing the system.
  • Exempt assets: Before filing your case, it’s a good idea to talk with your lawyer about your state’s exemption laws. Exemptions are designed to protect some of your possessions and assets so you can continue with your life. In most states, exemptions include a car, a house, clothing and other basic living necessities. Many states include disability payments on their list of exemptions. Exemptions are the reason there is rarely a sale of any property during a Chapter 7 case.

Ask a Bankruptcy Lawyer about Your Disability Payments

If you want to find out whether or not your disability payments will be protected if you file for bankruptcy, take the first step toward finding out: Connect with a bankruptcy lawyer practicing near you when you complete the form on this page. Get your answers during a free case evaluation.

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