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Chapter 13 And Social Security Benefits

What Is Social Security

Social Security Disability Benefits and Bankruptcy | Cleveland, Ohio SSD Lawyer

Social Security is a program that is meant to provide funds as a form of economic security for the public. The United States Social Security program was established in 1935 and provides old age, disability, and survivors insurance, in additional to supplemental security income to elderly or disabled people.

Disclosing Social Security Income In Chapter 13 Bankruptcy

When you file your case, you’ll tell the court, your creditors, and the Chapter 13 trustee appointed to oversee your matter how much you make, as well as the amount of your bills. Why? Because your repayment plan amount will depend on your income and expenses. Specifically, the calculations used in the means test determine how much disposable income you can afford to pay.

You’ll provide this information when you fill out the official bankruptcy forms. The forms provide instructions that are simple enough for the average person to provide the requested information without a problem.

Two of the forms require you to disclose your income, but only one of the forms asks for your Social Security income. The other does not.

You’ll disclose the actual amount of all of your current expenses on the Schedule J: Your Expenses form.

Chapter 7 Vs Chapter 13

Bankruptcy is a process under federal law to reduce or eliminate debt when you are unable to pay your bills and have tried all other ways to get back on firm financial ground. Individuals filing for bankruptcy usually use Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code.

Chapter 13, also called the wage earners plan, enables individuals with regular income to develop a plan to repay all or part of their debts over time . Most importantly, Chapter 13 provides a way for people to keep property like a vehicle or home and to stop creditors from garnishing wages while the plan payments are made.

A Chapter 7 case is a liquidation by which the debtors nonexempt assets are made available to a trustee to be sold and distributed to creditors. It does not involve submitting a debt-repayment plan with the court, as in a Chapter 13 scenario.

Federal law specifically excludes some income, including Social Security benefits of all types, from being paid to creditors. A bankruptcy filing automatically stays creditors from garnishing your wages and Social Security payments, and the Social Security Administration says it will not honor court orders to hand over anyones benefits to a bankruptcy trustee.

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A Bankruptcy Attorney Can Help You With Exemptions And Protecting Social Security Income

Protecting social security income is one of the reasons its so important to work with an experienced bankruptcy attorney when filing. He or she can assess your situation and determine if anything above and beyond the basic protections needs to be done to protect your social security income.

If you have questions about social security income and how if filing for bankruptcy can affect it, we can help. For more information or to speak to someone about your situation, contact the Bankruptcy Law Office of Robert M. Geller at 254-5696 to schedule a consultation.

What The Typical American Gets From Social Security

Chapter 13 payment plan example

When you look at average benefits for Social Security over the years, you’ll notice that they go up gradually. That’s due to a couple of factors, including not only the COLA but also the fact that the benefit formula changes each year to incorporate changes in work history and other factors.

The problem, though, is that you can’t count on those increases being consistent from year to year. As you’ll see below, there’ve been some years in the past decade in which the rise in the monthly check was minimal at best. Yet in 2023, program participants can expect relatively huge gains, with the average amount going up $170 from where it was at the beginning of 2022.


Average Social Security Benefit for Retired Workers



Data source: Social Security Administration.

The reason for this is pretty simple. Most of the 10.3% rise in the average from 2022 to 2023 comes from the 8.7% COLA that is slated to take effect at the beginning of next year. The rest of the increase is the result of ongoing increases in average earnings over time, which has the impact of incrementally adding to the benefit amounts for typical Americans.

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Ssa Cannot Recoup Payments Obtained By Fraud From Separate Program

The SSAs withholding of benefits from one program to recover fraudulently-obtained payments made under a separate program was not a recoupment free from the strictures of the automatic stay. U.S.A. v. Johnson, No. 17-5224 .

For more than three years John Johnson fraudulently received retirement social security benefits. Upon learning of the fraud, the SSA calculated that he owed almost $58,000 in ill-gotten benefits and penalties and began withholding his legitimate disability benefits. Mr. Johnson filed for chapter 13 bankruptcy and argued that the SSAs withholding of his disability benefits violated the automatic stay. The bankruptcy court agreed and the SSA appealed. Read More

Common Signs Of Bad Faith In Bankruptcy Filings

The bad faith standard is difficult to codify due to its multifaceted nature. It is for this reason that the determination of bad faith has been left to the bankruptcy courts as a matter of discretion there are, however, some common examples of bad faith filings for bankruptcy relief.147 Some of the most common examples are underreporting income in a chapter 7 filing, intentionally withholding nonexempt assets to avoid chapter 13 relief, intentionally taking in less income in the months leading up to filing bankruptcy, and taking on additional secured debts in preparation of bankruptcy.148 Additional considerations that will weigh in favor of a finding of bad faith include previous, frequent bankruptcy petitions and a showing that the debtor filed solely to benefit from the creation of the automatic stay barring creditors, secured and unsecured, from collecting payment from a debtors assets.149

All of these examples have a common underlying factorthere is an element of a debtors intentional deceptiveness to take advantage of the bankruptcy court system.153 But how can it be that a debtor exhibits bad faith when they exclude forms of income that Congress specifically intended for them to exclude?154

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Each State Has Different Rules On Social Security Income

Federal appellate courts have ruled that social security income should not be included in your current monthly income if you live in the following states: Arkansas, Colorado, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, or Wyoming.

Chapter 7 & Social Security

In bankruptcy, can you keep your social security?

In a Chapter 7, Social Security benefits that are based on your age or disability are not considered part of your income. This is important because your income under the means test determines your eligibility to file a Chapter 7 bankruptcy. Also, your benefits cannot be used to pay your creditors, but they can be considered in determining your ability to repay your creditors.

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In Many Bankruptcy Courts You Don’t Have To Include Social Security Income In Your Chapter 13 Plan Payment

If you receive Social Security benefits, you’re likely wondering if you’ll have to turn them over as part of your plan payment. Although most people can keep Social Security payments in Chapter 13 bankruptcy, whether you will be able to do so will depend on your total income and expenses, and the practices of your local court.

The Minority View: Inclusion Of Social Security Benefits

Despite the stance that a majority of bankruptcy courts adopt, a minority of courts still take the pre-BAPCPA approach that Social Security benefits are includable in a bad faith analysis, despite being excluded from the calculation of CMI and PDI. These courts adopt the view that the statutory absence of exemption of Social Security benefits from a bad faith inquiry warrants their inclusion. Because the totality of the circumstances framework for a finding of bad faith allows for a very broad consideration of the debtors financial circumstances,187 this group of courts has held that they may consider a debtors actual income, not only the income provided for in the calculation of CMI.188 Advocates of this viewpoint do not deny that BAPCPA evinced a congressional intent to move away from the once-common practice of including SSI in a bad faith analysis, they merely hold that Congress did not completely eliminate their ability to consider SSI in a bad faith inquiry in every instance.

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Will Bankruptcy Affect My Social Security

Bankruptcy can be a powerful tool for debt relief. If you are considering bankruptcy, but you receive Social Security benefits, there are some things you might want to be aware of. According to federal law, Social Security benefits are exempt in bankruptcy cases. Both the Social Security Administration as well as bankruptcy courts uphold this. However, there are some situations in which your benefits may be affected.

Lump Sum Payments And Social Security

The Benefits Of Chapter 13 Bankruptcy For Businesses

If you receive a lump sum payment, your funds are protected by the same laws that protect regular payments. They are, however, affected by the same standard as commingled funds. If you deposit payment in an account with other funds, a trustee may argue that it has been commingled. This could mean that the Social Security payment is no longer protected.

The trustee is more likely to argue this if the payment is a large one. This is because they have more to gain with a larger lump sum payment. Keeping Social Security funds separate may make it easier for you to protect your benefits.

The best way to protect your benefits is to ensure they are deposited in a separate bank account. Even if the funds were not protected, you may be able to protect a portion of them through a cash-on-hand or wildcard exemption.

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Parsing The Language Of The Code

Bankruptcy courts continue to struggle with parsing the permissible exemption of SSI from a debtors bankruptcy estate and its exclusion from the CMI and PDI calculations with the totality of the circumstances inquiry in considering whether to dismiss or convert a bankruptcy filing. This Section highlights the difficulties in reconciling the statutory language.

The Nature of the Benefits

One interpretive issue that arises relating to the inclusion of SSI in individual consumer debtors repayment abilities pertains to the nature of SSI relative to a debtors interest in them. Bankruptcy is intended to gather all of a debtors nonexempt assets into the bankruptcy estate and then either liquidate them and use the proceeds to repay creditors or allow the debtor to retain them so as to better repay creditors in installments for the three to five years following bankruptcy proceedings.155 How much of a debtors property is subject to the estate is a question of law. Whether assets are included in the estate but then excluded from repaymentor simply never enter the estate and are therefore not subject to repaymentis an interpretive matter.

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Evidence for the Exclusion of Social Security Benefits from Creditors

The shall not language of the provision leaves no discretion up to the bankruptcy courts.172

If You Receive Ssi Or Ssdi You Probably Qualify For Chapter 7

There are two main types of bankruptcy for dealing with consumer debt: Chapter 7 and Chapter 13. Chapter 13 bankruptcy is reserved for debtors who earn an income and can afford to pay back at least a reduced portion of their debt over time if they are given an extended period for repayment and more affordable monthly premiums.

Chapter 7 bankruptcy, on the other hand, is meant for individuals whose income is below a certain threshold and who are likely unable to pay back most or all of their debts, even given additional time. Chapter 7 bankruptcy wipes clean all covered debts, leaving the debtor with a fresh start. Individuals who qualify for SSI or SSDI, or whose sole source of income is Social Security benefits, will almost certainly qualify for Chapter 7 bankruptcy based on income. Most people who are entitled to SSI or SSDI benefits have an income well below their monthly expenses, leaving no additional income to pay debts as part of a Chapter 13 repayment plan.

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The Chapter 13 Hardship Discharge

After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328. Generally, such a discharge is available only if: the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor creditors have received at least as much as they would have received in a chapter 7 liquidation case and modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.

How Does Chapter 13 Bankruptcy Affect My Social Security

Should a person on social security file bankruptcy?

In Southwest Florida, we have an aging population, and many people who come to the Dellutri Law Group are on social security. Federal law says that no creditor can touch social security benefits. With Chapter 13, we have to look at it from two aspects: The first is social security and the means test, and the second is social security without the means test. Social security is not included in the means test budget. When you go to fill out your paperwork, you’ll put social security and income in Schedule I, but you’re not required to use social security money to pay back your debts. In bankruptcy, you never have to worry about your creditors touching your social security. Watch the video for more information.

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How Social Security Benefits Are Treated In Bankruptcy

by Admin | Apr 4, 2022 | Uncategorized |

If you receive Social Security benefits , or Social Security Disability Insurance benefits , you cant afford to pay all of your bills, and you are contemplating bankruptcy, you need to be aware of how these benefits are treated in bankruptcy. But before we discuss how these benefits are treated you should consider whether bankruptcy is even necessary in your situation, or whether it is in your best interest. Before you determine if bankruptcy is right for you, it is important that you understand the different bankruptcy options.

There are two common bankruptcies for consumers, Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is often referred to as a Fresh Start bankruptcy because it discharges most types of unsecured debt within about 90 days of filing bankruptcy . Most people whose only source of income is SS and SSDI benefits, easily qualify for a Chapter 7 bankruptcy. Fortunately, this is generally the cheapest, quickest, easiest of the two bankruptcy options.

To summarize very basically, if:

  • Your only income is SS or SSDI benefits and
  • You cant afford to pay all of your bills and
  • You arent bothered by creditors contacting you about your debts and/or suing you for those debts and
  • You arent concerned about your credit score: then
  • QUIT paying the debts that arent necessary to live , save your money, and dont file bankruptcy.


  • If the stress of debt collection and possible lawsuits bothers you or
  • Why The Challenges Seniors Face Are Far From Over

    As nice as it is to have extra money in your pocket, no one’s really celebrating over the increase in Social Security benefits. That’s because people have had to pay the higher prices that led to that big COLA throughout the year in 2022, so the boost only helps seniors catch up going forward on expenses they had to cover themselves until now.

    The numbers bear out exactly what seniors are facing right now. Using an experimental measure that focuses on what older Americans have to pay on a typical mix of goods and services, the Bureau of Labor Statistics said earlier this month that its CPI-E index rose 7.6% over the past 12 months. That’s the highest rate of annual gains since the government agency started measuring this research-based measure back in 1982.

    One silver lining, though, is that most seniors will get some good news on the Medicare front. A rare drop in monthly premiums for Medicare Part B medical coverage should add a few extra dollars to monthly checks.

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    Proving What Property Is Exempt

    When you receive Social Security funds, you need to exercise care in keeping them separate from your other financial accounts. These payments are only exempt if you are able to prove with absolute certainty that they come from the SSA. This means you may not commingle the money with other money you might have or receive from other sources.

    Every situation is different, but there is a good chance that you should be able to file for personal bankruptcy without losing your Social Security benefits as a result.

    The Role Of The Bankruptcy Trustee

    Hearings After the Bankruptcy Meeting

    Under either a chapter 7 liquidation or a chapter 13 repayment plan, a trustee is appointed to oversee the bankruptcy process and the repayment of creditors, if applicable. Some of your assets are available to the trustee, but some can be claimed as exempt. A trustee is not allowed to take exempt assets to pay off creditors. An attorney will help you determine what assets can be claimed as exempt, and will likely classify your Social Security disability benefits as exempt in order to prevent them from being viewed as income available to the trustee to pay creditors.

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