Effects of Bankruptcy on Social Security
One concern many people have about filing for bankruptcy is whether or not their Social Security benefits will be affected. The short answer is that bankruptcy should not affect Social Security benefits, but the laws governing this issue include a number of nuances. Here's a look at some of those.
Bankruptcy Exemptions: Protected Assets
First, let's establish what role Social Security might play in the two types of personal bankruptcy.
- Chapter 13 bankruptcy: In this type of bankruptcy, filers repay many of their debts with help from a three- to five-year repayment plan. Filers are not required to pay more than a certain percent of their income. In fact, if a filer's income falls below a certain level, he or she may qualify for Chapter 7.
- Chapter 7 bankruptcy: In this type, filers receive a full discharge of their eligible unsecured debts without making any repayments. The court protects many of a filer's assets, but can sell any non-protected assets to raise money to repay creditors in part.
Chapter 7 Exemptions
The protected assets in Chapter 7 are called "exemptions" and are designated at both the federal and state level. To learn exactly which of your assets would be protected if you file for Chapter 7 bankruptcy, you should speak with a bankruptcy lawyer practicing in your state.
Generally, though, exemptions include:
- Government assistance and benefits: Federal exemptions protect Social Security benefits, veteran's benefits, certain payments for the disabled and a number of other government-provided income.
- A home: Most states allow filers to maintain their place of residence or the equity they have in it, up to a certain value.
- Basic belongings: Clothes, work tools, books and other possessions considered necessary to maintain a certain standard of living are often protected by exemptions.
- A car: Many states protect a vehicle, up to a certain value.
Can the Court Take Social Security Benefits?
There are federal laws protecting Social Security payments (as well as other government assistance) from garnishment. If you receive Social Security benefits and are considering a bankruptcy filing, you may want to consult with an attorney who practices in your state to get an idea of what exemptions you can expect in court and whether bankruptcy makes sense for your finances.
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