Will Social Security Disability benefits be considered income in a bankruptcy plan?

Written by J. Hirby and Fact Checked by The Law Dictionary Staff  

The short answer is yes. The not so short answer is that while SSD may be considered income in a bankruptcy filing, it may not be a consideration for funds available in a Chapter 13 bankruptcy payment plan. SSD income may be viewed as part of disposable income to pay creditors depending on the state of the bankruptcy petition. Currently federal appellate courts in 4 districts governing 19 states have ruled social security income (SSI) is not to be included in bankruptcy cases. Each state?s Chapter 13 filing requirements are listed at www.pacer.gov.

Someone who is not sure about whether to include SSD income on a Chapter 13 filing may decide not to list it. Sometimes the receiving Chapter 13 trustee, the person who administers Chapter 7 and Chapter 13 bankruptcy cases in a given regional area, will want SSD income included in the petition. The trustee will try to acquire full disclosure of all available disposable income for a payment plan. The debtor has the right to challenge the trustee?s request and that will require a court judge to make a ruling.

A debtor has rulings from federal appellate courts and two federal laws on his side when arguing to exclude SSD income from a Chapter 13 payment plan. The two federal laws are the Social Security Act of 1983 and the Bank Abuse Prevention and Consumer Protection Act of 2005. Both laws state that a debtor?s SSI will not be included as part of a person?s bankruptcy estate.

For a Chapter 7 bankruptcy, the SSD income is not used for the means test. This is a calculation that uses all of a person?s income, excluding SSI, for the 6 month period prior to filing for bankruptcy. This figure is divided by 6 for a current monthly income, and that figure is multiplied by 12 for an annual income figure. If the result is less than the state?s median income, the debtor passes the means test for Chapter 7.

If the result is more than the state?s median income, the debtor needs to complete a Chapter 7 bankruptcy Schedule I for all monthly income and a Schedule J for all monthly expenses. If the end result shows a large amount of disposable income, a Chapter 7 trustee may disqualify the bankruptcy petition. A debtor may then decide that a Chapter 13 bankruptcy is an appropriate alternative avenue to pursue.

More On This Topic



Comments are closed.