These days, most Americans use credit cards in one form or another and carry a balance each month. Everyone has been affected by the economic meltdown. People living off social security benefits are no exception. If you are in over your head and in a lot of debt, and receive social security benefits (SSB), you may be wondering if receiving SSB will affect your ability to file a bankruptcy case. The answer depends on your specific financial situation.
If you currently do not own any real estate and the only income you receive is social security income, you are technically judgment proof because your SSB are exempt from collection activities, such as garnishments and levies. If this is your situation, you may not need to file for bankruptcy. Even if your creditors file a lawsuit against you and obtain a judgment, they cannot levy against your SSB. The most important thing is to make sure you can prove that everything in your bank account is derived from SSB and not commingled with other sources of income. It should not be too difficult to prove all the money you have is from SSB if that is your only source of income.
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If you do have real estate or other assets that need to be protected and you have other sources of income in addition to your social security benefits, most people will need to complete the Statement of Current Monthly Income and Calculation (commonly referred to as the "Means Test") to determine whether you qualify for a Chapter 7 bankruptcy or whether you should file a Chapter 13 bankruptcy instead. The means test determines what your average disposable income is based on your average income minus allowable deductions. If you have any disposable income left over it most likely means that you should be filing a Chapter 13 bankruptcy and paying back to them what you can afford to pay each month. Social security benefits are not considered income for means test purposes. That means that any income you receive from the Social Security office does not need to be calculated into this monthly equation.
However, even though social security benefits are not considered income for means test purposes, there is a second test to determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy. This test depends on what your monthly household income and expenses are. This is similar to the means test in that it takes your income and subtracts your expenses, but while the means test calculates the average income minus allowable expenses based on IRS standards to determine your disposable income, this test simply takes what your actual and future monthly household income is and subtracts your actual expenses to create your monthly budget (Schedule I and J in your bankruptcy petition). Whether your social security benefits are considered "income" depends on what jurisdiction you live in. Here in the Northern District of California, social security benefits are included in your household income. If based on your monthly budget you have disposable income, then again, it is a sign that you may need to file for a Chapter 13 bankruptcy.
Bankruptcy laws can be confusing, especially when trying to differentiate income or expenses on the means test and income for your Schedules I and J. If you have any questions, it is a good idea to consult with an experienced bankruptcy attorney.
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