Facing bankruptcy can feel overwhelming enough without the added concern of how it might impact your Social Security or Disability Insurance benefits. It’s a common concern among many contemplating this financial reset button, especially those relying solely on these benefits for their income. The good news? There are safeguards in place designed to protect your essential income. Let’s dive into the specifics and see what lies ahead for your benefits after bankruptcy.
Bankruptcy and Social Security Benefits
Bankruptcy offers a lifeline to those drowning in debt, with Chapter 7 and Chapter 13 being Florida residents’ most commonly navigated paths. Chapter 7, often called liquidation bankruptcy, can eliminate most debts but might require surrendering certain assets. Chapter 13, known as reorganization bankruptcy, allows you to keep your assets while repaying debts through a structured plan. For those receiving Social Security or Disability Insurance benefits, the big question is how these separate but similar plans intersect with federal protections for these funds.
Federal law generally shields Social Security benefits from creditors. This means that these benefits are safe from garnishment regarding unsecured debts like credit card bills or medical expenses. However, it’s not an absolute shield. Certain debts, such as back taxes, alimony, child support, and federal student loans, can pierce through and lay claim to your benefits.
Avoid the Commingling of Funds
Protecting your Social Security funds may seem straightforward, but that clarity can quickly become muddied if those funds are mixed with other money. This commingling of funds, perhaps in a joint account with a spouse or relative, blurs the lines, making it difficult to discern which money is protected. Once merged, these funds lose their distinguishable identity, potentially opening the door to creditors. Furthermore, commingling can complicate bankruptcy proceedings, as it may challenge your ability to claim exemptions for those funds.
To avoid this scenario, remember this guideline: keep your Social Security and Disability Insurance benefits in a separate account. Deposit no other types of funds here. While previously deposited funds in savings might be subject to this confusion, if you follow this simple advice, there should not be any direct threat to future funds. However, we can provide a better idea of how safe your funds are after a consultation where we learn more about your situation.
Personalized Legal Advice is Key
While general guidance can steer you in the right direction, complex bankruptcies and the specifics of your financial situation necessitate professional legal advice if you want to come out of this situation on the best footing. Each bankruptcy case is unique, and we cannot provide any legal advice before knowing more about your situation. Working with an attorney and meeting for a consultation immediately gives both parties a greater understanding of the situation. Your attorney will be able to provide more options to protect your benefits, and you will instantly gain access to their years of knowledge regarding the entire bankruptcy process.
This decision shouldn’t be taken lightly. If you’re relying on Social Security or Disability Insurance benefits and struggling under unmanageable debt, bankruptcy might offer a pathway to relief without risking the funds you depend on.
The team at the law offices of Richard V. Ellis stands ready to assist. With a deep understanding of bankruptcy law and a commitment to our client’s well-being, we’re here to help you regain your financial footing. Reach out today to start the conversation and take a step toward reclaiming your financial independence.
Richard V. Ellis and his team offer decades of expertise in bankruptcy and family law. If you are a Sarasota resident needing professional help from a local attorney who understands, call our offices today.
