How does bankruptcy affect social security benefits?

On Behalf of | Nov 8, 2021 | Chapter 7 |

There’s nothing pleasant about filing for bankruptcy but, sometimes, it’s your best option. Making that decision is difficult, requiring you to balance your need for debt relief against the consequences bankruptcy entails. If you depend on benefits from the Social Security Administration to pay your bills, it’s natural to wonder what bankruptcy would mean for those benefits.

Federal law provides some protection

As a general rule, both social security benefits and disability benefits are immune from most creditors when you declare bankruptcy. Chapter 7 of Title 42 of the U.S. Code states that the benefits cannot be transferred, garnished or attached as the result of bankruptcy. This is good news for benefit recipients, but it’s not the complete story.

There are exceptions to the rule, as what the government gives, it can also take away. Things like tax debt, outstanding fines or fees and student loans will often remain following a bankruptcy and the government has the power to seek repayment, even if that means attaching or garnishing social security benefits.

Commingled funds

Even if your benefits are protected by law during a bankruptcy, there are things you can do that will hurt your own cause. Commingling your benefits with other funds makes it more difficult to identify amounts which are protected from those which are not. Whether it’s money of your own from another source, or perhaps a joint account with your spouse, you run the risk of losing protected funds due to an inability to parse them out from non-benefit money. If you’re receiving benefits, and considering bankruptcy, the best thing you can do is to have a separate account for those benefits, so that they are easily identifiable.