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Social Security Disability benefits and bankruptcy

On Behalf of | Jun 27, 2016 | Bankruptcy

Virginia residents who have more debt than they can afford to pay back may decide to file for bankruptcy under Chapter 13. During the bankruptcy process, debtors will be asked to report all of their income and assets that could be used to pay off outstanding debts. Many people will have income from Social Security Disability benefits, but this income does not always have to be reported.

SSD income is usually reported in a bankruptcy filing, but it may not be considered part of a debtor’s available funds that can be used to pay off creditors in a court-approved repayment plan. Some federal appeals courts have issued rulings to that extent. However, a bankruptcy trustee will usually want to know about a debtor’s SSD income even if it is not included in bankruptcy plan calculations.

Conversely, income from SSD is not used as a factor in the means test that required to determine eligibility for a Chapter 7 bankruptcy. If the result of a means test does not allow a debtor to file for Chapter 7 bankruptcy, the debtor may decide to file for Chapter 13 bankruptcy instead.

If a Chapter 13 bankruptcy trustee wants to include a debtor’s Social Security Disability Income as part of the debtor’s available funds, the debtor may be able to challenge this decision. A lawyer who has experience with these matters may be able to help a debtor to exclude SSD income from a Chapter 13 repayment plan by arguing that its inclusion would violate both judicial precedent and federal law.