How Does Bankruptcy Affect Social Security Benefits in Indiana?

We receive this question a lot from retirees in Indiana. Roughly 40 percent of these individuals count on Social Security for their entire monthly income. Quite understandably, if bankruptcy threatened this financial lifeline, these families should be gravely concerned. But as outlined below, in almost all situations, that’s not the case.

Fundamentally, bankruptcy protects what is yours against creditors who would otherwise liquidate or seize it. Bankruptcy’s rules regarding Social Security benefits fulfill that purpose. But these protections are largely just theoretical unless a Chicago bankruptcy lawyer helps debtors take full advantage of them.

How Bankruptcy Helps Older Americans

For people of any age, the Automatic Stay and debt discharge are usually bankruptcy’s two greatest benefits. These benefits are especially valuable to older Americans.

Many older Americans have very narrow financial margins. Slight wage garnishment has a big impact, and a two or three month delinquency on an auto loan is almost impossible to erase. Bankruptcy halts these adverse actions and gives debtors the leverage they need to obtain workable solutions.

Bankruptcy discharges most medical bills and other unsecured debts. And, most people would rather not give their savings to doctors.

Classifying Benefits

Indiana has a rather generous government benefits exemption. Since Social Security payments come monthly, many debtors do not think this exemption applies. But it does. Both the Social Security Administration and U.S. bankruptcy courts agree that these benefits are assets as opposed to income.

Payment frequency is not income’s distinguishing characteristic. Generally, people receive income in exchange for services rendered, such as time spent or money invested. But benefits, especially Social Security benefits, are usually an entitlement.

Furthermore, Social Security benefits are government-backed benefits. State or federal government involvement places money in a protected category. Child and spousal support arrearage is a good example. Family Support Obligations like these are usually not dischargeable in bankruptcy under any circumstances. This protective umbrella also shields Social Security money.

Bankruptcy does stop adverse action where public debts are concerned. A voluntary petition halts wage garnishment and other collection efforts, usually for the duration of the bankruptcy. So, as mentioned, if someone is garnishing your Social Security benefits, bankruptcy usually stops such actions.

Protecting Benefits

Indiana’s government benefit exemption is almost unlimited, but Indiana’s wage exemption is quite limited. So, in order to take full advantage of the Social Security exemption, it is normally a good idea to keep this money in a separate account.

A different checking account at the same bank is usually rather easy to obtain. Once the money arrives in one account, it can be transferred to another account, often either at no cost or at a very negligible cost.

On a related note, bankruptcy occasionally affects ACH transactions. Since the Bankruptcy Code prohibits creditors from communicating with debtors, some banks suspend ACH transactions out of an abundance of caution. So, before you file, take steps to ensure that you continue to receive uninterrupted payments.

Do not move any money or set up a separate account until you speak with an attorney. Such moves could be considered fraudulent by some. 

Count on Dedicated Lawyers

Bankruptcy protects Social Security benefits. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

nirsonline.org/reports/examining-the-nest-egg/