If you’re in what are meant to be your “golden years” and mired in debt, you’re not alone. Bankruptcy rates among Americans 65 and older have increased significantly in the past few decades.
If you’re considering filing for bankruptcy to provide relief from the mountain of debt you’re facing, you may be concerned about whether filing for bankruptcy will require you to give up any of your Social Security retirement benefits and/or Veterans’ Administration (VA) benefits that may be your primary (if not your sole) source of income.
The good news is that under federal law, typically neither Social Security nor VA benefits can be taken by a bankruptcy trustee to repay a person’s creditors. Similarly, these and other government benefits generally can’t be garnished by creditors to repay debts if you don’t file for bankruptcy. (There are some exceptions if the debts are for taxes.) That means a bankruptcy trustee can’t just intercept or withhold those payments and put them toward what you owe.
What about benefits already deposited?
Where you may run into complications, however, is if money from these sources that has already been deposited in your bank account(s) and “commingled” with your other funds. To avoid any problems, it’s generally recommended that you establish a new bank account where all of your public benefits are deposited.
By filing for Chapter 13 instead of Chapter 7, you’ll have more protection for your current assets. Chapter 13 involves setting up a repayment plan with the court where you repay your debts over a three-to-five-year period, whereas comingled non-exempt assets could be liquidated in a Chapter 7 filing (although this is rare).
Are these benefits considered income?
These benefits are considered income, but only for some purposes. That means you may only qualify for Chapter 13 (and not Chapter 7) bankruptcy if your income (including your benefits) puts you above the median for the state. However, Social Security and VA benefits aren’t considered disposable income when working out a Chapter 13 repayment plan.
Overall, the federal government has taken steps to protect seniors who rely on these benefits and have earned them. Nonetheless, it’s important not to make any assumptions. If you’re considering bankruptcy, it’s crucial to get legal guidance as early as possible to help you make the best decisions for you and your family.