Living off of your disability benefits can create a financial hardship, especially if you were struggling before you were injured. If you file for bankruptcy, you might improve your situation, but you will also have to be aware of how that will affect future benefits. This overview will provide a deeper look at this type of situation, so you can determine how to move forward.

How Will Your Benefits Be Affected if You File for Bankruptcy?

In a Chapter 7 bankruptcy, your assets and income become a part of the bankruptcy estate. This means your assets are liquidated to help pay back what you owe to creditors, and your income may also be garnished for this reason.

However, when you receive benefits from a federal program for a disability, such as SSDI (Social Security Disability Insurance) or SSI (Supplemental Security Income), your benefit checks are considered exempt. Since benefit payments only cover your basic living needs, it isn’t considered disposable income. 

If you file for a Chapter 13 bankruptcy, and the court determines your benefits are not exempt, you may have to consider your benefits when developing a repayment plan. Similarly, if you’re filing a Chapter 7 and your disability benefits are paid through state-funded or private programs, they may not be exempt.

What Is Involved in the Filing Process? 

In a chapter 7 bankruptcy, the trustee will liquidate your qualifying assets to repay the debts you owe. Once this process is complete, most of the debts that still remain will be discharged by the court, preventing your creditors from pursuing you for the owed balances.

A means test is applied to all applicants for this type of bankruptcy, which seeks to determine if you have the financial means to repay your debts. Disability benefits are considered exempt from the means test, so it is easier to qualify if most of your household income comes from disability payments.

In a chapter 13 bankruptcy, you will be required to create a payment plan for any secured debts. The plan draws upon your disposable income and does not count disability benefits. If they are the primary source of income, it may take longer to repay your debts. Once you complete the repayment plan and attend a credit counseling course, the court will discharge your remaining unsecured debts.

An experienced attorney can help you file for bankruptcy while protecting the benefits you rely on for your livelihood. Located in Rochester, NY, William C. Rieth is backed by 25 years of experience and has a familiarity with the legal system that he uses to benefit his clients. The firm has a deep respect for each client’s privacy and needs. To schedule an initial consultation, call (585) 232-6520.