Many people dealing with bankruptcy rely on their Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) payments to live off of since they cannot work. It’s a common fear that those payments will be jeopardized if one were to file bankruptcy. Fortunately, in most cases your SSDI and SSI payments are protected in Chapter 7 bankruptcy. This means that the bankruptcy trustee cannot touch them. In fact, SSI payments and SSI lump sum payments are always exempt, because SSI is a federal program designed to provide financial assistance for basic needs.
However, there are exceptions when it comes to SSDI. There are a few things that will determine if you can keep your SSDI payments: where you live, whether you receive SSDI benefits or you receive payments from another source, and whether you are trying to protect your future ongoing payments or the lump sum you may have received for past benefits. Most people have questions about the last two items, so lets discuss them a bit more.
Ongoing Social Security Disability Payments
Most bankruptcy and Social Security laws prevent your disability benefits from being taken by the Chapter 7 trustee thus allowing you to continue receiving your benefits. This is the most typical scenario because most people depend on that money to pay the bills and support their families since they cannot work. Most states and the federal government have put into place exemptions to protect these benefits.
Social Security Disability Back-Pay Payments
Many people receive a lump sum disability payment based on the date of onset that was determined by the Social Security Disability office when they made a decision on a claim. If you are filing for bankruptcy, you will have to show that money was a disability payment to protect it from the Chapter 7 trustee. A decision in the Eighth Circuit Bankruptcy Appellate Panel found that all disability benefits are excluded from the bankruptcy estate, and in general, that’s how most courts approach it. However, there are some courts that have come to different conclusions. Fortunately, the exemptions found in the Social Security Act allow you to claim your disability payments be exempt in a bankruptcy case.
It is important to note that where you live can come into play at this point. Some jurisdictions have implied exceptions that protect only the amount that you need for your care and support of your family, and therefore, the Chapter 7 trustee could go after part or all of your lump sum disability payment. While they cannot go after SSI lump sum payments, the debtor may still have to prove it was an SSI payment. It’s important to be educated about this before starting the process as it can feel very overwhelming. If you have any questions about bankruptcy and how it will affect your disability claim, please feel free to call our office.
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