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Does receiving disability keep people from filing for bankruptcy?

On Behalf of | Jan 2, 2023 | Personal Bankruptcy

Bankruptcy, in contrast with the many unpleasant misconceptions surrounding it, is a valuable tool for dealing with debt. Over 400,000 people filed for one in 2021. according to the United States Courts.

It may especially help those who suddenly find themselves unemployed or on disability, neither of which disqualifies individuals from filing for bankruptcy. However, those receiving disability benefits must factor in special considerations when filing.

Losing benefits is not a certainty

A major fear with those on disability is that filing for bankruptcy will cost them the benefits they need to live. The loss of funds already deposited in the bank from previous disability payments is usually the main concern. However, disability benefits are generally exempt to some extent from seizure.

Benefits count as income

VA disability and disability that falls under the Social Security Act do not factor into the average monthly income calculations and forms that determine if a person can file for a Chapter 7 bankruptcy. They also are not considerations when filling out the similar monthly income calculations and paperwork for Chapter 13 bankruptcy that help to determine the potential duration of the payment plan. However, individuals must include their benefits when they calculate Schedule I income, which, combined with estimated living expenses, helps determine net monthly income.

People receiving disability benefits do not have to worry about losing their benefits, including previously paid money in the bank, as a result of filing for bankruptcy. However, they do need to include the benefits they receive when performing certain calculations and filling out specific forms during the bankruptcy process.

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