Filed A Claim For SSI Benefits & Considering Filing For Bankruptcy, Too? Here's What You Need To Know
If you have filed a claim for SSI disability payments from the Social Security Administration and are struggling to pay your debt, you may be considering filing for bankruptcy. One thing that could make you apprehensive is the thought that when your disability income is approved it will be used to pay for your debt. Don't be concerned. There are a few things you can do to protect your SSI disability payments in a bankruptcy. Here's what you need to know.
Means Tests & Eligibility For Chapter 7 Bankruptcy
When you first filed a claim for your SSI benefits, you had to take a means test. This was the test that calculated the money you had available to you, whether as income or as assets that could be easily sold for cash. If you are awarded SSI, it will be because you fall below the means of being able to afford basic living expenses.
When you speak with a bankruptcy attorney, you will take another means test. A bankruptcy means test determines whether or not you have enough money or liquid assets to pay back your debt based on the median income levels in your state. You will be determined to be a Chapter 7 bankruptcy candidate if you don't pass the means test. Essentially, if you failed the means test for SSI benefits, you will likely fail the means test for bankruptcy and be eligible to file a Chapter 7.
In 2015, the maximum SSI payment for individuals is $733.00, which is well below the median income levels that are used in the bankruptcy means test. Therefore, there's no need to hurry up and file for bankruptcy before your SSI comes in. It likely won't make a difference in the results of the means test.
SSI payments are protected in bankruptcy
Your SSI payments, including any back pay that you may be given incrementally, will be protected by law and cannot be taken to pay for debt. However—and this is a BIG however—it is extremely important that you keep your SSI payments separate from any other income you may have. That way, the bankruptcy trustee will know where the income came from and that it cannot be garnished.
To keep your SSI separate, it is crucial that you set up an electronic transfer account for your SSI to be directly deposited into. The bank or credit union will then be able to see that your income is protected, which means it cannot be garnished by anyone for any reason, including bankruptcy. For this reason, keep this income in this account until you need it for groceries or to pay a bill or other expense.
It's important to set this up before you get an SSI payment in a paper check. Once you cash a paper check there is no way for your bank to verify where the income came from, which means it could affect your means test and could be garnished to pay debt in a bankruptcy, depending on the laws of your state.
If, however, there isn't enough time to set up the electronic transfer account before your first SSI payment is expected in paper check, you'll want to make a certified copy of the check and keep documentation of the income, such as deposit slips and/or receipts. That way, you can show your bankruptcy trustee that the money you have actually came from your SSI income.
Waiting for approval of an SSI claim can definitely be challenging financially, which could cause you to need to file for bankruptcy due to being unable to pay creditors. Before you file for bankruptcy, speak with a social security disability attorney for more state-specific information about bankruptcies in your state.