It's difficult to face financial challenges, and these challenges sometimes come with the risk of bankruptcy. If bankruptcy becomes specific, it's understandable to worry about how it would affect essential sources of money. Many people acquire social security payments from their states. Such people become skeptical regarding how filing for bankruptcy is going to influence their social security payments.
If you are one of those, then you are in the right place. In this article, we will tackle the most critical question regarding bankruptcy that often goes unanswered. So, let's get started!
Basics of Bankruptcy and Social Security Funds
Bankruptcy:
An individual or business files for bankruptcy when they are unable to fulfill their debts or other commitments. It provides an opportunity to start again for those who are unable to pay their expenses.
A petition lodged either on behalf of the creditors (less common) or by the debtor (more common) starts the bankruptcy procedure. All the assets owned by the debtor are assessed and valued, and some of the property may be employed for the repayment of the existing debt.
Social Security Funds:
Social Security payments are given to eligible retired adults, disabled individuals, and their partners, kids, and surviving family members. Social Security is a complete federal benefit scheme that offers retired adults as well as their partners, individuals whose spouse or qualifying ex-spouse has passed away, and individuals who have disabilities a portion of their income. It also provides help to the recipients' children in certain situations.
Impact of Bankruptcy on Social Security Funds
No matter where you happen to live, you can retain Social Security payments if you apply for bankruptcy because they are "exempted" or secured. It can be challenging to demonstrate, nevertheless, that money originated via Social Security payments and not from some other source once it has been combined with other cash.
If you are unable to demonstrate that all the money in your bank account comes from Social Security, the funds will no longer be safeguarded. By keeping your Social Security income in a different account, you can prevent unwanted issues with bankruptcy.
The form of bankruptcy you file for is the most crucial factor to take into account when figuring out how it impacts your social security payments. The effects of bankruptcy under Chapters 7 and 13 on social security payments vary.
Chapters 7, Chapter 13 And Their Effect on Social Security Payments
Any income you acquired within the six months immediately before the filing must be reported if you file under Chapter 7. It involves social security income; nevertheless, there is little chance that you will have to give the court access to those benefits.
While submitting a Chapter 7 application, your social security payments may only be withheld if they are paired with other sources of income. When receiving the social security payment into your bank account along with other cash, this is a thing to think about.
Your assets are protected in bankruptcy under Chapter 13 until you agree to a continuous repayment schedule. Since the plan is dependent on your income, social security benefits can be utilized to estimate your financial condition but cannot be used to pay off debt. This implies that you could not be eligible for Chapter 13 if your only source of income is Social Security.
Ways to Keep Social Security Money Safe During Bankruptcy
You don't risk anything, even if you disclose every asset. The amount of property that can be retained after declaring bankruptcy is outlined in the exemption rules of each state. You declare an item exempt in a bankruptcy application by mentioning the code number of the exemption laws if it is permitted by law.
Thankfully, many filers are still able to preserve a small automobile and other home goods. However, you can't be sure that everything stays yours. The trustee appointed under Chapter 7 bankruptcy will ascertain whether the property is yours to keep and will take any nonexempt property to satisfy your creditors.
Never Mix Social Security Benefits with Other Funds
You must provide evidence of your entitlement to keep the money if you indicate in the bankruptcy application that some of it is exempt from bankruptcy. The bankruptcy trustee may not believe you if you just tell them that part of the money in your bank account is exempt from Social Security benefits, particularly if you've "commingled" or combined them with other money in the same account. It is challenging to demonstrate which resources are exempt due to commingling.
Maintain a Different Social Security Account
To avoid commingling problems, it's a good idea to keep your Social Security income in an account that you use just for that money. It enables you to track the origin of the money, whether it was an automated payment by the Department of Social Security or the Social Security check. This is a smart move, even if you're not thinking about filing for bankruptcy. It facilitates the process of shielding your own Social Security funds from lawsuit collection efforts by creditors.
It also allows you to get the most out of your exemptions. Accurately categorizing exclusions can help shield your Social Security benefits and any additional funds saved in the bank's account from additional sources. You can retain more of what you can define as exempt!
Wrapping Up!
To sum up, bankruptcy can have little to no effect on your social security funds. The thing is, you need to think carefully before choosing the type of bankruptcy you file for. Chapter 7 and Chapter 13 will influence your funds differently. Another thing to consider is to make sure that your Social Security funds are not commingled with funds that came from other sources; otherwise, it would become hard for you to protect your exempted Social Security payment.
Speak with a bankruptcy attorney about your choices prior to filing under Chapter 13 or Chapter 7. Make sure you find out if you need to file for bankruptcy or if keeping your money in a different account would be sufficient.
