When someone is facing financial difficulties, bankruptcy might be a way to get relief. However, if you’re receiving Supplemental Security Income (SSI) or other social security benefits, you might wonder if those funds are counted as disposable income in bankruptcy. The question of whether SSI is included as disposable income for bankruptcies is important because it can impact the type of bankruptcy you file and your repayment options.
In this article, we will explore how SSI and social security income are treated during bankruptcy proceedings, and how it may affect your financial future. We’ll also discuss how a bankruptcy lawyer can help you navigate these waters.
Contents
What is Disposable Income?
First, it’s important to understand what disposable income means in bankruptcy. Disposable income is the amount of income left over after a person’s necessary expenses, like rent, utilities, food, and medical bills, are paid. This is important because, in a bankruptcy case, the court looks at your disposable income to determine how much you can afford to pay back to creditors.
If you have a lot of disposable income, you may be required to file for a Chapter 13 bankruptcy, where you propose a repayment plan to pay back your unsecured debt, such as credit card bills or medical bills. However, if you have little to no disposable income, you may be eligible for Chapter 7 bankruptcy, where many of your debts can be discharged without a repayment plan.
How Does SSI Relate to Bankruptcy?
Social Security Income, which includes Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and other benefits, is often considered an essential part of someone’s monthly income. But the key question is: is SSI included as disposable income for bankruptcies?
The answer is no, SSI is not counted as part of disposable income when determining eligibility for bankruptcy. The reason is that SSI payments are considered a protected income under federal law. This means they are not included in the calculation of your total monthly income when filing for bankruptcy. Since SSI benefits are meant to support people who are disabled or elderly, they are considered exempt from being used to pay creditors.
How Does SSI Affect the Means Test?
The Means Test is a method used in bankruptcy cases to determine whether someone qualifies for Chapter 7 bankruptcy. Chapter 7 is often called the “liquidation” bankruptcy because, in some cases, your assets may be sold off to pay creditors. The Means Test looks at your total monthly income to see if it’s below or above the median income for your state. If your income is above the median, you may have to file for Chapter 13 bankruptcy, where you repay your debts over time through a repayment plan.
SSI income is excluded from this calculation, so if you receive social security benefits, you may still qualify for Chapter 7 bankruptcy even if your other income is above the median for your state.
What Happens if I Have a Lump Sum Payment?
If you receive a lump sum payment of SSI benefits (perhaps due to retroactive payments), this amount is generally not included in your disposable income either. However, it could impact the type of bankruptcy you file for. In some cases, if you receive a lump sum payment shortly before filing for bankruptcy, the trustee may look at how you are using that money. If you are spending it in ways that are not necessary (like spending it on luxury items), the court may consider it as an attempt to hide assets.
In these cases, it’s best to consult a bankruptcy attorney to understand how to report the lump sum payment correctly and avoid complications in your case.
Chapter 13 Bankruptcy and SSI
In a Chapter 13 bankruptcy, you will enter into a repayment plan with the court, where you pay a set amount each month to creditors over a period of 3 to 5 years. Even though SSI benefits are not counted as disposable income, they still need to be listed on your bankruptcy schedules. You are required to list all sources of income, including social security income, on your bankruptcy paperwork, including Schedule I and Schedule J.
If you have significant income from other sources, such as a job or business, it may be factored into your repayment plan. However, the social security payments themselves will not increase the amount you must pay, since they are excluded from disposable income.
Filing for Bankruptcy with Medical Bills
If you’re filing for bankruptcy due to mounting medical bills and you receive SSI benefits, the SSI payments will not be included as income when calculating your ability to pay back those bills. Unsecured debt, like medical bills, credit card debt, and personal loans, is often discharged in Chapter 7 bankruptcy. However, in Chapter 13 bankruptcy, you would be required to pay back a portion of this unsecured debt through your repayment plan, depending on your disposable income.
How a Bankruptcy Lawyer Can Help
Filing for bankruptcy can be complicated, especially when it comes to understanding what is and isn’t counted as income. If you’re receiving SSI benefits and considering bankruptcy, it’s wise to speak with a bankruptcy attorney who understands the rules and exceptions. They can help you navigate the process, ensuring you don’t overlook any important details or miss out on options that could help you get a fresh start.
A bankruptcy lawyer can also guide you through the Means Test and explain how your average monthly income (including social security income) will affect your eligibility for Chapter 7 or Chapter 13 bankruptcy. They can also help you prepare your Schedule I and Schedule J forms, ensuring that all of your social security income and medical bills are properly accounted for.
Social Security Act and SSI
Under the Social Security Act, SSI benefits are not considered part of disposable income in bankruptcy cases. This ensures that people who are receiving these benefits for disability or old age are not unfairly forced to use their vital income to pay back creditors. Social Security Disability Insurance (SSDI) is also protected under the law in bankruptcy.
Conclusion
In summary, SSI is not included as disposable income for bankruptcies, and this can be a major relief for those who rely on social security payments. If you’re facing bankruptcy and wondering how your SSI income will affect your case, it’s important to understand that while it won’t be counted as income for the Means Test, you still need to disclose it in your bankruptcy filing.
If you’re considering filing for bankruptcy, whether due to credit card debt, medical bills, or other financial struggles, consulting a bankruptcy attorney can help ensure that your social security benefits are properly handled in the process. They can help you understand your options, including whether to file for Chapter 7 or Chapter 13 bankruptcy, and guide you through the paperwork to protect your benefits.
Also Read: Moving from One State to Another with SSI: What You Need to Know
