The Effects of Bankruptcy on Social Security Disability Benefits
Sadly, it is not uncommon for disabled individuals to struggle with their financial responsibilities due to the inherent difficulty in working. Those receiving Social Security disability benefits with debt problems frequently turn to debt settlement services. Debt settlement services cease to be a viable option when the debt becomes too severe and foreclosures, occur forcing people to declare bankruptcy. This worries many people as they are unsure how filling for bankruptcy will affect their Social Security disability benefits.
Social Security Disability Insurance was started by the federal government in 1956, in an attempt to assist employees, who because of a physical or mental disability were unable to work. These benefits help people cover their basic living expenses, benefits that according to the Social Security Act cannot be levied, attached, or garnished in any way. Accordingly, this disallows creditors from repossessing an individual’s S.S. benefits in an attempt to collect on their debt.
A “disability” is defined under the federal Social Security Act, as the inability to engage in any substantial gainful activity by reason of any medically determinable physician or mental impairment which can be expected to last for a continuous period of not less than 12 months or result in death.” The Code of Federal Regulations outlines the five-stage process used to assess disability claims. The evaluation stops at the first conclusive stage that finds an individual to be disabled or not disabled, and it becomes unnecessary to proceed with the other stages.
Stage One: Substantial Gainful Activity
A person’s monthly wage, if any, is examined and if it is high enough they will not be considered disabled irrespective of their medical condition, age, work experience, or education.
Stage Two: Severe Impairments
Next, Social Security must establish the individual has a severe impairment or a combination of impairments, or they are regarded as not disabled.
Stage Three: Compassionate Allowances List
If a severe impairment is found, Social Security then must compare it to a list of specific impairments, referred to as “The Listings”. If the individual’s impairment meets a listed impairment’s characteristics or is equal to it in severity, they are classified as disabled regardless of age, education, or work experience. “The Listings” does not include every impairment or diagnosis; however, the Social Security Administration announced on July 14, 2011 the addition of 12 conditions to the Compassionate Allowances List, which will now outline 100 conditions.
Stage Four: Residual Functional Capacity
If the impairment is not found or fails to satisfy the requirements in “The Listings”, Social Security will then perform a test to determine an individual’s ability to perform their previous work by examining their residual functioning capacity (RFC). If a persons RFC indicates they are capable of meeting the demands of their previous work, they are ruled not disabled.
Stage Five: Final Analysis
However, if a person’s RFC reveals they are unable to do their previous work, Social Security performs a fifth and final analysis. The individual’s RFC, age, education, and work experience are taken in the aggregate to determine one’s ability to perform other work. To be considered disabled, an individual must be unable to do any other work.
When evaluating an individual’s ability to file for Chapter 7 bankruptcy, a median income test must be performed in accordance with the Bankruptcy Abuse Prevention and Consumer Protection Act (2005). This test compares an individual’s income to the median income level for the state for his/her household size. If the person’s income is equal to or less than the state level, they are authorized to file for Chapter 7 bankruptcy. Although a person’s living expenses are taken into account under this test, Social Security benefits are not taken into consideration when determining one’s eligibility for Chapter 7 bankruptcy.
However, this is not the case if a debtor files for Chapter 13 bankruptcy and fails to cover the payment plan. Consequently, the debtor’s Social Security benefits become recognized as a source of income to which the trustee has access. By reporting the precise amount of disability benefits received each month to the bankruptcy court and asserting the appropriate Social Security benefits exemption allowed, this scenario could be prevented.
Additionally, the trustees in a bankruptcy case are prohibited from taking the assets of a person as a way to pay off creditors if the individual claims exemption. An individual’s source of income, or assets necessary to preserve a certain standard of living, is allowed to be an exemption. Likewise, the Bankruptcy Provision of the US Code grants the debtors the right to receive disability benefits, which are classified as exempt. Depending on the state where bankruptcy is filed, the debtor generally has discretion when choosing between state and federal bankruptcy exemptions.
If you are considering filing for bankruptcy and are concerned that doing so may negatively influence your Social Security disability benefits, it is recommended that you seek advice from a qualified attorney who can assist in protecting your rights as a Social Security beneficiary under the bankruptcy code.
Sources
How Does Social Security Evaluate Disability Claims?
Social Security Disability: Compassionate Allowances Have Become More Compassionate
How Filing for Bankruptcy Can Affect Social Security Disability Benefits
Code of Federal Regulations
Bankruptcy Abuse Prevention and Consumer Protection Act
Social Security Act
42 U.S.C. §407
List of Compassionate Allowances
Posted By: Eston Whiteside