As people live longer and remain active well into their senior years, it’s not surprising that more seniors are filing for bankruptcy than in past decades. Between unexpectedly high medical bills (even with Medicare), the rising cost of living and often having to help support adult children, bankruptcy may be the only choice for seniors who find themselves drowning in debt.
For seniors who are considering bankruptcy and have already begun taking their Social Security retirement benefits, it’s common to have concerns about how those benefits affect their ability to file for bankruptcy – and how bankruptcy will affect those monthly benefits.
While Social Security benefits are considered income and must be listed along with all other sources of income in the documentation provided to the bankruptcy court, it is generally not considered in any means testing – for example, to determine whether someone qualifies for Chapter 7 bankruptcy or would need to use Chapter 13. Further, these benefits cannot be garnished or otherwise directly taken to pay a person’s debts.
Can these benefits be taken to pay off debts?
If money received from Social Security is placed in a person’s checking or savings account, those accounts may still be subject to forfeiture in a Chapter 7 bankruptcy to pay creditors.
This can be avoided by designating a specific account solely for the purpose of depositing these payments with no money from other sources going into it. However, it’s crucial to be sure that anything that is done with Social Security benefits to keep them in bankruptcy is legal.
For seniors considering bankruptcy, it’s crucial to know how Social Security retirements as well as other government benefits and money in retirement accounts like IRAs and employer-sponsored accounts factor into the process – as well as to their overall financial situation. Having sound legal guidance can help potential filers to make the right decisions – for them uniquely – and avoid unnecessary and costly legal pitfalls.