If you’re living on a fixed income funded by Social Security, filing bankruptcy can be the best solution to a debt problem. Sometimes, unexpected things happen and it causes people to drown in medical bills and credit card debt. When you’re young, you may be able to work more or take on a second job. But when you’re older and living on a fixed income, this debt can spiral out of control fast.

The good news is that a bankruptcy filing in Westchester NY will not affect your Social Security check. It is not considered ‘income’ for bankruptcy purposes. However, like most things, there are some caveats to be aware of. Let’s explore this topic in more detail – bankruptcy in New York and Social Security – so that you know what to expect.

Is Social Security Protected During Bankruptcy?

While Social Security benefits count as ‘income’ for federal tax purposes, this is not the case for bankruptcy. Creditors cannot take your Social Security benefits when you file Chapter 7 or Chapter 13 bankruptcy, as this money is exempt from levy, garnishment or assignment by creditors.

Even if a judge awards a creditor a judgment against you, they can’t take the money out of your account or intercept your check. Nonetheless, we still recommend managing your benefits in a separate account so that you can track the money. If you put all of your money into one account, it can be difficult to prove later on where it came from.

The only time Social Security money is not protected is when dealing with the IRS. The IRS can withhold money from your monthly checks to pay down back taxes, defaults on student loans and failure to make child support payments. The good news is that a bankruptcy attorney can stop this from happening, at least for a short time.

Do I Have to Add Social Security to My Monthly Income? 

Even though your Social Security income is protected, you must still list it on your bankruptcy filing. Like your retirement plan, 401K account and pension, all are exempt, but you are required to list them on the paperwork. If you omit any of this information, or the court feels that you have left out information, your case can be denied.

But here is where things get interesting. In the bankruptcy world, Social Security is considered an asset and not income, so it does not count on your means test. So, make sure that you include your Social Security benefits on your bankruptcy filing, but be aware that they will not beef up your income.

Can I Use Social Security Toward My Chapter 13 Repayment Plan?

In Chapter 7 bankruptcy, most unsecured debts are erased. But in a Chapter 13 bankruptcy, your debts are consolidated, and you’ll make one monthly payment for three to five years. If you are planning on a Chapter 13 bankruptcy, you might be wondering if you can use Social Security money to make the monthly payments.

The answer: Yes, you may contribute some of your Social Security benefits to making your Chapter 13 repayments. However, you do not have to. It all depends on how much your payment plan is and the sources of your income. If you cannot afford to make any monthly payments, Chapter 7 bankruptcy is probably best.

Why Should I Keep Social Security in a Separate Account?

Remember, it’s best to keep your Social Security benefits in a separate account so that you can easily track your money. If you commingle your funds, it’s going to be difficult to know where your income is coming from, and this can hurt you when creditors’ try to collect judgments.

Separating your Social Security money makes it easier to protect these benefits and trace the source of your funds. You can set up this account before or after filing bankruptcy, though it’s always best to do this in advance. If it’s too late for this, talk to a bankruptcy attorney about the New York wildcard exemption.

Talk with an Experienced Bankruptcy Attorney in Westchester NY

The Law Office of William Walder specializes in Chapter 7 and Chapter 13 bankruptcy filings in Westchester NY. Contact us today to set up a consultation – you can get accurate information based on the specific circumstances of your case. There is no obligation to continue, so find out if bankruptcy is the solution you need to clear your debts!