Is Social Security Disability Income Protected in Bankruptcy?
Filing for bankruptcy can be a stressful process, especially for individuals receiving Social Security Disability Insurance (SSDI) benefits. A common concern is whether these benefits are at risk during bankruptcy proceedings. Fortunately, federal laws provide significant protections for SSDI income, ensuring that it remains a lifeline for those who rely on it. Here’s what residents of Arkansas, Oklahoma, Mississippi, Tennessee, Texas, and Louisiana need to know about from our Arkansas & Nationwide Attorneys at American Disability Action Group how SSDI is handled in bankruptcy.
1. SSDI Is Exempt from Creditors Under Federal Law
SSDI benefits are protected from creditors under Section 207 of the Social Security Act. This means that creditors cannot seize your SSDI income, even if you owe significant debts. These protections apply regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy.
In Arkansas, where many residents face financial challenges related to healthcare or disability, this exemption provides crucial relief. However, you must be diligent in correctly categorizing SSDI income when filing bankruptcy documents.
2. How SSDI Is Treated in Bankruptcy Proceedings
During bankruptcy, the court requires a complete disclosure of your income, including SSDI payments. However, because SSDI is classified as exempt income, it is not included in the pool of assets that creditors can claim.
For residents of Oklahoma, this means that your SSDI benefits will remain untouched while other debts, such as credit card balances or medical bills, are addressed through bankruptcy proceedings.
3. Exceptions and Precautions
While SSDI is generally protected, there are exceptions to consider:
- Commingled Funds: If SSDI benefits are deposited into a bank account and mixed with non-exempt funds (such as wages or other income), creditors may argue that these funds are no longer identifiable as SSDI. To avoid this issue, keep SSDI benefits in a separate account.
- Overpayment Debts: If the Social Security Administration claims you were overpaid SSDI benefits, this debt is not dischargeable in bankruptcy and must be repaid.
Residents in Mississippi and Tennessee, where financial hardships are common, should take extra care to separate their SSDI income to preserve its exempt status during bankruptcy.
4. SSDI and the Means Test
When filing for bankruptcy, the means test is used to determine eligibility for Chapter 7 bankruptcy. Fortunately, SSDI income is excluded from the means test calculation, making it easier for many individuals in Texas to qualify for Chapter 7 bankruptcy without concern about disqualification due to income levels.
5. Bankruptcy for SSDI Recipients in Louisiana
For those in Louisiana, where hurricanes and other disasters can complicate financial stability, understanding the protection SSDI offers during bankruptcy is critical. Proper documentation and the assistance of an experienced attorney can ensure that your benefits are fully protected.
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Social Security Disability Income (SSDI) is a vital resource for many individuals, and it is well-protected under federal law during bankruptcy. Whether you live in Arkansas, Oklahoma, Mississippi, Tennessee, Texas, or Louisiana, you can rest assured that your SSDI benefits will remain secure as you work to regain financial stability. If you are considering bankruptcy and have questions about how it will affect your SSDI benefits, the American Disability Action Group is here to help you navigate the process and protect your rights.
Source:
ssa.gov/OP_Home/ssact/title02/0207.htm
