Scheduling SS Benefits: What’s the Big Deal?

For most purposes, it doesn’t matter if a debtor lists Social Security benefits on Schedule A (Assets) or Schedule I (Monthly Income). Social Security benefits, and other government benefits as well, such as workers’ comp payments, are exempt in bankruptcy. But when the case goes to court, listing these payments as an asset or income source could make the difference between a relatively easy bankruptcy and an extremely difficult one.

Some people say football is a game of inches. One or two plays over the course of a game often determine who wins and who loses. Similarly, bankruptcy law is a matter of words. A few words here or there over the course of a bankruptcy case make a tremendous difference in the outcome. Paying close attention to minute details is one mark of a good Chicago bankruptcy lawyer. A lawyer should never treat your bankruptcy case as one out of many. Each case is different and needs special attention.

Chapter 7 Issues

The biggest deal about SS payment scheduling (or one of the biggest deals) is that the money affects the income-expense balance in Schedules I and J (Monthly Expenses).

Quite frankly, Chapter 7 debtors need to appear broke when they face trustees (people who manage bankruptcy cases for judges). A debtor who’s in the red every month clearly needs Chapter 7 unsecured debt discharge. That’s especially true if the debtor has significant credit card and other unsecured debts.

If Schedule I monthly income is higher than Schedule J expenses, even marginally, many trustees ask unwanted questions during the 341 meeting. The same thing is true if a Chapter 7 debtor reaffirms too many debts, such as car payments, house payments, an internet service agreement, and a credit card or two. In these cases, many trustees believe that if the debtor isn’t in severe financial distress, the debtor is hiding something.

Questions about the need to file bankruptcy are just one of the issues in a 341 meeting. During the meeting, debtors must honestly answer all questions. Furthermore, prior to the meeting, debtors must produce documents, such as tax returns, property deeds, insurance declaration pages, and W-2s.

Lying to the trustee is grounds for involuntary dismissal, as is refusal to cooperate with a bankruptcy trustee.

Chapter 13 Issues

Listing Social Security payments as assets on Schedule A is a good idea in a Chapter 7, to reduce the debtor’s on-paper monthly income. Listing Social Security payments as assets in a Chapter 13 is a very bad idea, for the same reason.

Chapter 13 debtors must have sufficient disposable income to fund a monthly debt consolidation payment. A Chicago bankruptcy lawyer can estimate the amount of this payment, based on the amount of allowed claims and a few other factors. The debtor’s monthly income must be high enough to make this payment without making too many sacrifices.

If a Chapter 13 debtor cannot easily fund a debt consolidation payment that meets minimum legal requirements, the trustee will probably give a thumbs-down recommendation to the bankruptcy judge. As a result, the judge usually holds a hearing with an uncertain outcome.

So, in a Chapter 13, debtors need as much income as possible to avoid difficulties later. Making this payment also helps these debtors recover from bankruptcy faster.

After the judge closes the bankruptcy and all allowed claims are paid, many former debtors keep making the Chapter 13 payment, at least for a few months. But they don’t give that money to the trustee. They put it in a savings account. After just a few payments, most debtors have a savings account large enough to weather any future financial storm, such as a job loss or divorce.

Connect With a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.