Bankruptcy When You Are on Disability

The Social Security Administration states that there are currently nearly 9 million people receiving social security disability benefits with the average monthly being a little over $1,200 per month. I meet weekly with clients who are living on disability benefits, but as you might imagine it is very difficult to get buy on $1,200 per month.

Often incomes are supplemented with credit cards to help make ends meet however over time this starts to add up as well and people find themselves in a situation where they don’t have the ability to work to bring in more income, their disability benefits are barely enough to cover basic living expenses, and the credit card debts go unpaid.

This leads to collection calls, debt lawsuits, and all of the other difficult things that come with owing money.

Can Creditors Garnish My Social Security Disability?

In the typical debt collection scenario the debt collector will file a lawsuit, obtain a judgment, and then garnish wages or levy money out of a bank account. Those living on the fixed, limited income that social security disability provides are understandably nervous about the thought of losing any of their disability benefit to wage garnishment or bank levy.

The good news is that disability payments are exempt under federal law – meaning that creditors cannot garnish or levy those funds to pay debts.

But that doesn’t mean that creditors cannot still call you and ask for payment or that they might even try and garnish or levy the accounts – they just won’t be successful in the end.

What I mean by that is a creditor could file a lawsuit against you again you or even try and garnish your bank account and you would have to raise an objection and the defense that the money they are trying to take is protected (exempt) under federal and most state laws.

So the debt collectors can still be annoying, they just can’t take your disability benefit and it would be left up to you defend any attempt to take those protected funds.

How Bankruptcy Works When You are on Disability

The fact that you receive disability payments does not directly impact your bankruptcy other than actually making it easier to file.

Here’s how – most people that file for bankruptcy file chapter 7. Chapter 7 bankruptcy is designed to eliminate unsecured debts like credit cards, medical bills, and personal loans. You must qualify to file a chapter 7 and those qualifications are based upon your household size and your annual income. If you make more than the typical family of your size in your state then you may not qualify for a chapter 7.

However, when it comes to filing chapter 7 for those people who receive social security benefits, the Bankruptcy Code does not require that we include your social security benefits in the income calculations.

For example, in Arizona the income limit for an individual needing to file a chapter 7 bankruptcy is about $46,000. If an individual makes more than that there is a good chance that they will be required to file for chapter 13. However, if you are on social security disability those funds are not included in the calculation and thus it become pretty straight forward to qualify for the chapter 7 filing.

Increased Arizona Exemptions for those with a Disability

One of the risks of filing a chapter 7 bankruptcy is that the bankruptcy court can seize assets that are both paid for and “non-exempt”. Arizona has numerous exemptions that protect your assets and belongings as you go through the bankruptcy process.

Each of these exemptions have a specific dollar amount attached. For example, in Arizona each person filing for bankruptcy gets a $6,000 exemption in a vehicle. This means that you can have a vehicle with up to $6,000 of equity.

If you are disabled the Arizona exemption laws allow you to double this exemption and you are permitted a $12,000 exemption in a vehicle.

Reduced Legal for Those on Social Security Disability

Because it is easier to qualify for a chapter 7 bankruptcy when your main source of income is social security disability we at the Arizona Consumer Law Group actually offer a reduced legal fee for those individuals that are needing to file for bankruptcy. This is because it significantly reduces the work that is needed to prepare your case allowing us to pass on those savings to you.

We offer a free consultation to assist you in gaining as much knowledge as possible before you make the decision to file a bankruptcy case.

If you would like to set up a free consultation please give us a call at (480) 420-4028 or fill out the form below: