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Is your Social Security included in bankruptcy calculations?

On Behalf of | Jan 17, 2022 | Bankruptcy

In order to qualify for a Chapter 7 bankruptcy, you have to pass what’s known as the “means test.” This test looks at your countable sources of income and your normal monthly expenditures and seeks to determine whether or not you have the ability to repay some of your debts. 

If the means test indicates that you do, you will probably have to file a Chapter 13 bankruptcy instead. When older people have to file for bankruptcy (often because they find their retirement benefits simply can’t keep up with inflation or they have medical debts they want to clear away), one of the first questions they ask is how their Social Security will affect anything – or be affected. 

It doesn’t count toward the means test, and it can’t be taken 

While regular pensions and retirement plans are counted as income for the means test and can be used to repay creditors, Social Security benefits are exempt. This includes: 

  •     Supplemental Security Income
  •     Social Security Retirement Benefits
  •     Social Security Dependent Benefits
  •     Social Security Disability Benefits 

While you must list any of these forms of income on your financial disclosure forms, they will not be factored into the total income used for the means test. This can allow you to qualify for Chapter 7 more easily. 

In addition, even if you still don’t qualify for Chapter 7 bankruptcy once you exclude all forms of exempt income, your Social Security Benefits are still safe. Multiple federal courts have ruled that Social Security Benefits cannot be taken to pay creditors in a Chapter 13 bankruptcy. 

Don’t let fear hold you back from a debt-free life. While the bankruptcy process may seem complicated, experienced guidance can make it easier to understand.