A Quick Guide to Bankruptcy and Government Benefits

This guide will be quick because, in most cases, government benefits are 100 percent exempt in Illinois bankruptcies. Furthermore, the Automatic Stay also extends to government benefits. The trustee (person who oversees a bankruptcy for a judge) cannot seize an exempt asset, like government benefits or a retirement account, and liquidate it to pay debts. The Automatic Stay prevents creditors from doing likewise.

Asset protection is available, but the rules are very complex. So, only a Chicago bankruptcy lawyer who focuses on consumer matters should handle these cases. Multiple options are available. Chapter 7 bankruptcy eliminates most credit card, medical bills, and other unsecured debts in as little as six months. Chapter 13 gives distressed debtors up to five years to catch up on past-due mortgage payments and other delinquent secured debts.

Social Security

This exemption is especially important in grey bankruptcies. The overall bankruptcy filing rate has dropped sharply since 2005. But the over-65 filing rate has increased significantly over that same time period. Many debtors in this age group heavily rely on Social Security Insurance payments to pay their monthly bills.

SSI is never available in lump-sum form. These payments always arrive monthly. For this reason, many people, including many Chicago bankruptcy lawyers, assume that SSI payments are nonexempt income.

However, the Illinois state exemptions, the Bankruptcy Code, and the Social Security Administration are all quite clear that SSI payments are exempt assets. Furthermore, because of the Automatic Stay, they are exempt from withholding or garnishment orders.

Ordinary income, like direct or indirect wage income, usually isn’t subject to such protections. For this reason, most lawyers advise most SSI recipients to keep these finds in separate accounts. Always consult with a Chicago bankruptcy lawyer before moving money in such a way, as it could be considered evidence of bankruptcy fraud.

Disability Income

This exemption usually applies to workers’ compensation, VA disability, and Social Security Disability payments. Bankruptcy doesn’t affect these financial benefits. Bankruptcy also doesn’t affect medical bill payment or other such benefits.

However, bankruptcy could affect the legal processes in these disability matters. The aforementioned Automatic Stay also applies to all litigation that could involve financial matters, such as disability cases, divorce matters, and collection lawsuits.

The good news is that Section 362 of the Bankruptcy Code only applies to civil cases if a debtor files a suggestion of bankruptcy, at least in most cases. So, these cases may generally proceed if the debtor wants them to proceed.

Government Windfalls

Refunds, like tax refunds, are the most common government windfalls. Mortgage escrow overpayment refunds are usually subject to the same rules.

We mentioned that exemption rules are complex, and we aren’t kidding. Furthermore, the rules vary in different jurisdictions.

Technically, all government or other financial windfalls are nonexempt assets. However, in most cases, an attorney can file an amended petition and apply the wildcard exemption to these windfalls.

This technique isn’t always available, and isn’t always necessary. As a rule of thumb, if the tax refund or other windfall is less than $1,000, most trustees don’t bother to file a motion for turnover. Even if they do file a motion, by the time a judge rules on the motion, the money is usually gone. So, the matter is moot.

Assume Jeff and Tammy each claim they own a house. They ask a court to resolve their dispute. But before the hearing, the house burns down. At that point, it doesn’t matter who legally owned the house, because the house is gone.

Connect With a Thorough Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual and home consultations are available.

Source:

ilga.gov/legislation/ilcs/documents/073500050K12-1001.htm