Search Site
Menu

How Disability Benefits Are Treated in a Bankruptcy Case

If you are considering filing for bankruptcy and are on disability, you may be concerned about how the case will affect the benefits you are receiving. Although they are deemed assets under bankruptcy law, disability benefits are generally protected from creditors by being covered by state and/or federal exemptions. However, having these benefits as part of your income and assets may still have an impact on your bankruptcy case.

The first question that must be addressed in filing for bankruptcy is which type of bankruptcy you’re eligible for. To file a Chapter 7, which is a straight discharge of most or all debts, you usually have to pass the means test. This takes into account any income that might be available to be partially repay your debts. Whether disability benefits are included in calculating that income depends on their source. The calculation excludes federal disability benefits, namely Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI) and Veterans Administration (VA) disability income. However, benefits from private and state sources may have to be factored in. Your total monthly disposable income cannot exceed the Georgia median income for households of your size.

If you qualify for Chapter 7 bankruptcy, also known as a liquidation, you can exempt a large amount of your property from being sold off to pay creditors. In Georgia, you can only use the bankruptcy exemptions provided by state law. But federal non-bankruptcy exemptions for SSDI, SSI or VA benefits may be used, which means you can keep these funds as they roll in.

A common question is whether benefits received as lump sums prior to filing for bankruptcy can be exempted as well. The answer is yes, but you will have to prove the sources of the amounts you are claiming to be exempt. This can be done by showing bank or investment account records and matching them with benefits statements. If the disability funds were used to make purchases, that property might also be exempt as long as the source of funds can be verified.

If your income level is too high to qualify for Chapter 7, you can pursue a Chapter 13 bankruptcy, which is a restructuring and repayment of your debt over a period of three or five years. Part of determining your monthly repayment amount is factoring in the amount of your disposable income. For this purpose, disability income from government sources is not considered but income from state and private sources is. This effectively means that some of your benefits may be devoted to repaying creditors.

Jeff Field & Associates in Scottdale, Georgia helps individuals throughout the Atlanta metropolitan area obtain debt relief through bankruptcy. We have offices in Scottdale, Gainesville, Marietta, Lawrenceville, Douglasville and Athens. To schedule a personal consultation, please call 404-381-1278 or contact us online.

Leave a Reply

Your email address will not be published. Required fields are marked *

Videos
Our Attorneys
Client Reviews
  • google
    5.0/5.0

    What can I say??? This process was smooth as ever. I spoke with an attorney in December just to get information on how the process works he explained and went over every question I could think of. We spoke again in March and got the process started a...

    Read more

    Leonia Leonia

  • google
    5.0/5.0

    **Real review** I was extremely nervous filing a chapter 7 and going the bankruptcy route. You hear so many negative stories regarding following bankruptcy. However, I can honestly say this was the best decision I've made for my financial situation. ...

    Read more

    Aminah Jackson

  • google
    5.0/5.0

    After my consultation with Jeff I found that I didn’t even need to file for bankruptcy. He knows his stuff and I highly recommend his services. I didn’t expect so many positive things to come out of the consultation I had. Thank you Jeff! Great a...

    Read more

    Misfit32 _One

  • google
    5.0/5.0

    Everyone at Jeff Feilds law office are very helpful and professional, they made the process easy. I recommend them highly.

    Read more

    Mark Waddell

  • google
    5.0/5.0

    Best lawyers I ever work with thanks Jeff field & associates

    Read more

    Shawn Birch

See all reviews
Contact us

Please fill out the form below and one of our attorneys will contact you.

Quick Contact Form