Bankruptcy is not something anyone really wants to do, but sometimes life events make it a necessity. It may comfort you to know that famous and successful people across the country have filed for bankruptcy. However, despite knowing that, it still causes worry and stress. Many people worry about what will happen to their house, their belongings, car and even their social security payments. This blogs will discuss what happens to your social security benefits in both a Chapter 7 and Chapter 13 bankruptcy case. Then there will be one less thing to worry about.
What happens to Social Security Benefits in a bankruptcy case?
One common question about social security benefits and bankruptcy is whether the social security counts toward bankruptcy and whether it can be seized by creditors.
Chapter 7 Bankruptcy – A means test is required to find out if your income is low enough to file for Chapter 7. Since Chapter 7 wipes out a person’s debt, a filer is required to prove that they are unable to repay that debt. Therefore, if you fail the means test, Chapter 13 may be an option for you. Could Social Security payments boost your salary too high and disqualify you for Chapter 7 bankruptcy? The answer is no. If you receive Social Security benefits, you are not required to include that income on the Chapter 7 bankruptcy means test.
Chapter 13 Bankruptcy – The answer is a bit different when it comes to Chapter 13 Bankruptcy filing. Social Security benefits will be turned over to a trustee to be a part of your repayment plan. More and more courts are allowing debtors to keep the social security, it may depend upon the specifics of your case. In a Chapter 13 bankruptcy case, a debtor must list all debts and list all manners of income including social security. A repayment plan is devised that will allow a period of 3-5 years for repayment to occur.