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Filing Bankruptcy Due to Disability

People who file for bankruptcy often do so as a result of a traumatic life experience, such as a divorce, job loss, or a medical emergency. Another common reason to file for bankruptcy is the presence of a disability.

The onset of a disability may have prevented you from working, which in turn makes paying all your debts more difficult, if not impossible. Fortunately, through personal bankruptcy, you may be able to eliminate some or all of your debts.

To learn more about filing bankruptcy due to disability, fill out the form below and connect with a local bankruptcy attorney for a free, no-obligation consultation.

Disability Bankruptcy Filings

When you file for bankruptcy with a disability, you follow the same bankruptcy law as everyone else; there are no separate requirements for people with disabilities. As a result, you will have to choose between Chapter 7 and Chapter 13, the two main types of personal bankruptcy.

Chapter 7 bankruptcy is designed for people with limited assets who are looking to discharge some or all of their unsecured debts.

Debts that may be eliminated through Chapter 7 include:

In order to file for this type of bankruptcy, you must pass the Chapter 7 means test, which is essentially a measure of your income and expenses. This test ensures that only people who would truly benefit by filing for Chapter 7 are allowed to file for it.

If, for some reason, you are not eligible for Chapter 7, Chapter 13 bankruptcy allows filers to reorganize their debts into more reasonable payment plan.

Chapter 13, however, requires filers to have a relatively stable source of income, either through wages or government benefits, which allows them to make regular payments on their restructured debt plan.

Filers for Chapter 13 are often looking to keep valued possessions through the bankruptcy process, like a house or car, as they seek to catch up on mortgage or car loan payments.

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Bankruptcy's Effect on Disability Payments

If you are receiving or plan to receive government disability benefits, you may be concerned about bankruptcy's potential effect on these benefits.

There is no quick or easy answer to this concern, as cases vary widely by state and the filer's unique circumstances. Since most filers for bankruptcy opt for Chapter 7, here's how disability benefits may be treated under Chapter 7:

  • In this form of bankruptcy, your creditors may try to take some of your assets in order to meet your debts.
  • Most states, however, recognize disability payments as exempt from this process.
  • So, you may be able to hold onto your disability income, even if your creditors are able to get other assets.

This exemption, however, depends on your state's laws. To learn more about filing bankruptcy due to disability, speak with a local bankruptcy lawyer today.

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