What Happens To Your Social Security Disability Benefits In Bankruptcy In Arizona?
Many disabled people rely on their Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) payments as their primary or exclusive income when they are not able to work. Unfortunately for many people, SSDI or SSI payments may be barely enough to live on, which means any unexpected bills could result in bankruptcy. Individuals and families who contact a Phoenix bankruptcy lawyer may be understandably worried about what will happen to their Social Security income if they need to file for bankruptcy due to medical bills, credit card debt, or other financial obligations.
Are My SSI Payments Protected In Bankruptcy?
Generally speaking, SSDI and SSI payments are exempt from bankruptcy, which means they are protected from seizure. However, not all bankruptcies result in the seizure of assets. In a Chapter 7 bankruptcy, a bankruptcy trustee will be assigned to your case who has the authority to sell some of your help and use the proceeds to pay for your debts. Federal bankruptcy code as well as state law describes strict requirements on what can be seized and what is exempt, or protected, from seizure.
In a Chapter 13 bankruptcy, all of your assets are protected and will not be seized. Instead, your debt will be restructured into a monthly payment plan that is based on your disposable income. At the end of 3-5 years of payments, the remainder of your debt will be discharged.
Factors The Court Considers When Determining Whether To Protect Your Social Security Disability Benefits In Bankruptcy In Arizona
Federal bankruptcy code views disability benefits as an asset, rather than income, but mostly protects Social Security income. The court will consider specific factors as you go through the bankruptcy filing process:
- Whether you’ve filed for Chapter 7 or Chapter 13 bankruptcy
- Whether your SSDI payments are through a state, federal, or private program
- Whether your payments are ongoing or a lump sum for past benefits
- The laws of the state where you reside
Consult with your trusted bankruptcy law firm for additional guidance and personalized advice for your situation. Your attorney can help you understand the applicable details of the bankruptcy code as well as how to protect your benefits when filing for bankruptcy.
What Are Arizona’s Laws Regarding Social Security Income & Bankruptcy?
In Arizona, receiving disability payments does not significantly impact filing for bankruptcy because your payments are protected. Living on Social Security income can make it easier for you to file and expand your qualifications.
Most people who file for bankruptcy choose a Chapter 7 bankruptcy. This type of bankruptcy will discharge, or eliminate, most unsecured debts, such as credit card debt, medical bills, and personal loans. To file for a Chapter 7 bankruptcy, you must meet specific qualifications, including being under an income threshold based on your family size.
People who are receiving SSI payments in Arizona are at an advantage when it comes to filing for Chapter 7 bankruptcy because their Social Security benefits do not need to be included in their income calculations. In Arizona, the income limit for an individual to file for Chapter 7 bankruptcy is approximately $46,000. That number will increase if there are multiple people in your household. If you receive SSI or SSDI payments, those funds do not need to be included in the calculations, which simplifies your filing process and increases the likelihood that you will qualify for Chapter 7 even if you have another source of income.
The Disability Exemptions Available In Arizona Chapter 7 Bankruptcy
One of the disadvantages of filing a Chapter 7 bankruptcy is that some of your assets can be seized to pay for your debts, although Arizona honors many exemptions to protect your primary home, vehicle, and other assets. Each asset can be valued up to a certain amount. That means there is a limit on how much your home or vehicle can be worth, for example. However, if you are disabled, Arizona’s bankruptcy law doubles the exemption amount. Your home or vehicle can have a higher value and still be protected from seizure.
The Benefits Of Chapter 13 Bankruptcy For Disabled People With Overwhelming Debt
If your income is above the threshold even without including your SSI income, or if you wish to fully protect all of your assets and belongings, your Arizona bankruptcy attorney may recommend that you file for a Chapter 13 bankruptcy. The advantage of filing for Chapter 13 bankruptcy is not only protection for your assets, but it remains on your credit for a shorter period and enables you to pay back some of what is owed. Your monthly payments will be determined by your amount of disposable income and approved by the court.
Filing for bankruptcy is not necessarily the only option for overwhelming debt. Zero Down Bankruptcy Lawyers of Arizona can assist you in exploring other options, such as debt settlement, resource programs, and other potential solutions. The good news is that there is hope for overwhelming debt! Contact us to learn more about your options for a fresh financial start.
This article is courtesy of Blake Goodman, PC, a trusted attorney with nearly 35 years of experience in bankruptcy law.
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