- The Social Security Administration provides monthly payments to individuals with severe disabilities, particularly disabilities that prevent them from working a full-time job. These disability payments are considered an entitlement, meaning that anyone who meets the necessary criteria is entitled to receive them. Disability payments, like most government benefits, are exempt from most kinds of seizure by creditors. In a Chapter 7 bankruptcy, disability proceeds could not be legally seized by a judge.
- To qualify for bankruptcy, a person must demonstrate that he has insufficient assets to pay his debts. To show this, the person must pass a means test. Under federal law, disability payments do not count as a form of income in a means test. Under Chapter 7 bankruptcy, the filer must turn over control of a number of his assets to a trustee, who then use these assets to pay off the filer's creditors. This will never include a person's disability payments.
- While a trustee cannot seize a person's disability payments, under a Chapter 13 bankruptcy, in which the debtor must eventually pay off his creditors, a judge may consider these payments a form of income. Although the payments are not considered income when deciding if the person qualifies for bankruptcy, they can be factored in when the judge of a Chapter 13 bankruptcy decides how much the debtor will be required to pay his creditors and under what type of payment plan.
- A creditor cannot touch your Social Security disability payments after you have declared bankruptcy, and it cannot generally touch them before, either. In nearly all cases, Social Security disability benefits are protected from seizure by creditors, including through wage garnishment or the freezing of a bank account. The only exception is if you owe money for child support; in this case, the government may be entitled to seize some of the money paid by the Social Security Administration.
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