Disability and Bankruptcy

With the waiting period for Social Security Disability claims frequently reaching three years, not counting the appeals process, many individuals who are unable to work find themselves considering bankruptcy in an effort to get out of the clutches of creditors. Because of this waiting period, many individuals have questions concerning how bankruptcy interacts with disability.

First of all, if there is a pending Social Security claim, the individual needs to let his or her bankruptcy lawyer know. Bankruptcy lawyers hate surprises and a sudden approval for disability is a huge surprise. Not only do questions then come up about the lump sum check for past due Social Security payments but also there are questions concerning the budget. Introducing a new source of income could change a person’s budget under Chapter 13 significantly.

For purposes of Chapter 7 bankruptcy, any disability payments are generally not considered part of the means test. Because this rule is fairly well established, the questions really concern whether or not an individual is permitted to keep the entirety of the lump sum “past due” check. This question is much more complicated to answer. The answer depends on the state’s exemption laws as well as the procedures and practices of the local bankruptcy court.

A state is permitted to write its own exemption laws for bankruptcy and the local courts are allowed to establish their own rules concerning what can be kept and what needs to be turned over.

Contact Us

If you have been injured or have a medical condition which prevents you from working, contact the Indianapolis Social Security attorneys of the Hankey Law Office at (800) 520-3633 to learn more about your legal options.