Principal Attorney
For many individuals receiving disability benefits, financial struggles are a harsh reality. A common concern is whether filing for bankruptcy might impact these vital payments. Here’s a closer look at how bankruptcy might affect your disability payments and what you need to know to protect your financial well-being.
Understanding Disability Benefits and Bankruptcy
There are two main types of disability benefits administered by the Social Security Administration (SSA): Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs serve different purposes and have distinct eligibility criteria.
Eligibility for SSDI is based on your work history and the Social Security taxes you’ve paid, while SSI is a needs-based program for individuals with limited income and resources. This distinction becomes crucial when considering the potential impact of bankruptcy on your benefits.
The Impact of Bankruptcy on SSDI Benefits
Generally speaking, filing for bankruptcy does not directly affect your SSDI benefits. These payments are considered “protected income” under federal law. This means that in most cases, bankruptcy trustees cannot touch your SSDI payments to repay creditors.
However, while a bankruptcy filing won’t affect your SSDI benefits themselves, any funds from these payments that you’ve accumulated in a bank account may not be shielded. Depending on the type of bankruptcy you file, some of these saved funds could potentially be used to pay creditors, particularly if you owe back child support.
SSI and Bankruptcy: A Different Story
When it comes to SSI, the situation can be more complex. Since SSI is a needs-based program, changes in your financial situation—including those resulting from bankruptcy—could potentially affect your eligibility or benefit amount.
Filing for bankruptcy might eliminate some of your debts, which could theoretically increase your disposable income or resources. In some cases, this could impact your SSI eligibility or benefit amount. However, the reality is often more nuanced, and many bankruptcy filers do not see a significant change in their SSI benefits.
Protecting Your Benefits During Bankruptcy
If you’re considering filing for bankruptcy while receiving disability benefits, there are steps you can take to protect your income:
- Consult an experienced attorney: A lawyer familiar with both disability law and bankruptcy can provide tailored advice for your situation.
- Keep benefit payments separate: Consider maintaining a separate account for your disability payments to make it easier to track and protect these funds.
- Understand exemptions: Learn about your state’s bankruptcy exemptions, which may offer additional protection for certain assets and income.
- Be transparent: Always be honest and upfront about your disability benefits and all sources of income during the bankruptcy process.
The Importance of Timing
The timing of your bankruptcy filing can be crucial. If you’re expecting a lump-sum payment of back-due benefits, for instance, you may want to consider how this could affect your bankruptcy case. An experienced attorney can help you determine the best timing for your situation.
Life After Bankruptcy: Maintaining Your Benefits
Once your bankruptcy case is resolved, it’s important to stay vigilant about maintaining your eligibility for disability benefits. This includes reporting any changes in your financial situation to the SSA as required, particularly for SSI recipients.
Remember that a bankruptcy discharge can provide a fresh financial start, potentially making it easier to manage your budget and maintain your eligibility for needs-based benefits in the long run.
Seeking Professional Guidance
Understanding the intersection of disability benefits and bankruptcy law can be challenging. At the Disability Advocates Group, we help individuals throughout Southern California understand and protect their disability benefits. While we focus on disability law, we work closely with bankruptcy attorneys to ensure our clients receive comprehensive guidance.
If you’re receiving disability benefits and considering bankruptcy, or if you have questions about protecting your benefits, don’t hesitate to reach out. Our experienced team is here to help you understand your options and make informed decisions about your financial future.
