Does Bankruptcy Affect My Social Security Income?

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In a Nutshell

If you list it as exempt, your Social Security is almost always protected during bankruptcy.

Written by Kristin Turner, Harvard Law Grad.  
Updated July 22, 2020

For someone living on a fixed income that is funded by Social Security benefits, filing for bankruptcy can be a lifesaver when they find themselves drowning in credit card debt, medical bills and other unsecured debts.

If you depend on Social Security to pay your bills, it’s normal to wonder if bankruptcy would affect your Social Security check. The short answer is “no.” Chapter 7 (or any other type of bankruptcy) does not affect your Social Security income.

Is My Social Security Income protected during Bankruptcy?

While Social Security income counts as “income” for federal tax purposes, it is not “income” for bankruptcy purposes. Social Security, Social Security Disability Insurance and Supplemental Security Income are almost always protected during bankruptcy.

Qualifying for Chapter 7 If You Have Social Security Income

Social Security Income and the Means Test

The means test states that debtors can generally only file Chapter 7 if their income is below average for that geographical area. For example, if you live in California and your family has at least four people, your household income must be less than $94,505.

Means test income levels change about once every three months.

Since Social Security benefits are considered an “asset” and not “income” for bankruptcy purposes, Social Security funds do not count on the means test. It does not matter what type of Social Security income you receive. They are all these same in this specific context.

Social Security and My Paperwork

Social Security Income and Schedule C (Asset Exemptions)

Many people rely on some form of Social Security income. Federal bankruptcy laws, and most state laws, protect this income. In fact, it is not “income” for most purposes. Instead, Social Security benefits are an “asset,” an asset that is usually exempt.

Social Security benefits are protected under 11 U.S. Code § 522(d)(10)(A), the public assistance benefits exemption.

Whether you received a lump sum or are receiving periodic payments, list Social Security benefits on Schedule C. You’ll use 11 U.S. Code § 522(d)(10)(A) to claim it as exempt.

Social Security Income and Schedule I/J (Income/ Expenses)

Although Social Security does not count as “income” for means test or most bankruptcy purposes, it should still appear as income on Schedule I. You must declare Social Security income for both you and your spouse (if you are filing jointly) on Line 8e. This will give the trustee the best snapshot of your monthly finances.

What Should I Watch Out For?

Commingling Social Security and Other Types of Income

The exemption for Social Security is not absolute. If you mixed your Social Security funds with other funds, like wages from your job, the trustee may ask questions. In some cases, a judge could declare that the commingled funds are no longer exempt.

In that situation, the trustee could take this money from your account, or force you to pay it back, and distribute this money to your creditors. There are some steps you can take to avoid this problem.

Before you start moving money around, always talk to a lawyer first.

If you receive periodic payments, it might be wise to place them in a separate account.

Spending the money does not trigger the commingling problem. That only happens if you mix Social Security benefits with non-exempt income, like wage income.

If you received a lump sum, things are a little more complicated. The trustee might be happy with a detailed deposit record which clearly shows that the money came from the government. In other cases, you might need to do more.

Social Security Is Usually Protected During Bankruptcy

Once again, if you list it as exempt, your Social Security is almost always protected during bankruptcy. If you have doubts, you should reach out to an attorney. He or she can tell you what’s best to do.

About the author
Kristin Turner, Harvard Law Grad

Kristin is a recipient of Harvard Law School’s Public Welfare Foundation A2J Tech Fellowship. At Harvard Law, she served as a member of the Harvard Defenders, the Women’s Law Association, and Harvard Law Negotiation Review. She was the 2016 – 2017 president of the Black Law Stude... read more

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