Social Security and Bankruptcy

No matter the economic climate, making ends meet is always difficult when an individual loses a job or stops working, but for individuals with disabilities it can be even more of a struggle. With the costs of medication, doctor visits and health insurance, many disabled individuals find themselves sinking into a world of debt while waiting for Social Security disability.

For those with spouses, family support or other resources to rely on, some individuals are able to  play the waiting game. Letters to creditors and mortgage companies explaining the disability and stating that a Social Security disability application is pending can be useful in the beginning, but some individuals find themselves facing foreclosure and contemplating bankruptcy.

The critical question every individual asks is whether their Social Security can be garnished as part of a creditor’s claim or in bankruptcy. The short answer is that Social Security payments are protected from creditor’s liens and bankruptcy proceedings, with three exceptions: unpaid federal taxes, defaulted student loans and child support. The matter becomes more complicated however when Social Security funds are co-mingled with other funds sources of income. The best way to prevent this is not to co-mingle Social Security funds with any other income, whether it is wages, income from rentals, or income from a spouse’s work. Whether you do this by creating a new account for the Social Security checks or set up a new account for all other monies, it is best not to allow Social Security payments to mix with other income. This way, an individual filing for bankruptcy can clearly delineate Social Security payments from all other sources.

Anyone considering filing for bankruptcy should contact a bankruptcy attorney.


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