Filing for Bankruptcy While on Disability: What You Need to Know
Disability benefits affect bankruptcy in two important ways: income reporting and asset protection. Social Security and VA disability must be listed on Schedule I but don't count in means test calculations. Most ongoing benefits stay protected, but lump-sum payments may need specific exemptions to remain safe from creditors.
Get Free ConsultationYou receive disability benefits and need debt relief. Bankruptcy might help you get a fresh start.
Your disability income affects your bankruptcy case in two key ways. First, it changes how you report income. Second, it determines whether funds in your bank account stay protected.
Protect Your Disability Benefits in Bankruptcy
Worried about losing your SSDI, SSI, or VA benefits? Get a free consultation with a bankruptcy attorney who understands disability income rules. Discover whether Chapter 7 or Chapter 13 fits your situation.
Speak With an AttorneyUnderstanding these rules helps you file correctly and keep your benefits safe.
Reporting Disability Income in Bankruptcy
You must list your disability income on two required bankruptcy forms. These include the means test form and Schedule I.
Each form uses your income information differently.
The Means Test Form
You report Social Security disability income on the means test. However, it doesn’t count toward your final monthly income calculation.
Social Security benefits won’t affect your Chapter 7 eligibility. They also won’t change how long your Chapter 13 repayment plan runs.
VA disability benefits don’t need to appear on the means test form at all.
Schedule I Income Reporting
Schedule I requires you to list all disability income. Both Social Security and VA benefits must appear here.
The court uses Schedule I to calculate your total monthly income. Judges review whether you can cover your living expenses.
You also list any deductions from your disability payments. Common deductions include taxes and insurance premiums.
Types of Disability Income
Three main types of disability income exist for bankruptcy purposes.
Social Security Administration (SSA) pays the first type. SSA programs include Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).
Veterans Affairs (VA) provides the second type. VA disability income follows different rules than Social Security benefits.
Private disability insurance makes up the third type. Private insurance isn’t covered in this guide.
How Disability Benefits Affect Chapter 7 Bankruptcy
Your disability benefits typically won’t stop you from filing Chapter 7. You still need to pass the means test.
The means test compares your income to your state’s median income. Good news: disability benefits get special treatment.
Social Security disability benefits (SSDI and SSI) are excluded from means test calculations. You list them on the form, but they don’t count toward your final number.
VA disability benefits don’t even need to be listed on the means test.
If you’re struggling with debt and receive disability benefits, you can speak with a bankruptcy attorney for free to explore your options.
How Disability Benefits Affect Chapter 13 Bankruptcy
Chapter 13 bankruptcy requires a repayment plan. Your total income determines how much you’ll pay each month.
Disability benefits must be included on Schedule I. The court sees them as part of your disposable income.
Higher income from disability benefits may increase your monthly plan payments. The court calculates what you can reasonably afford to pay creditors.
Protecting Your Disability Benefits
Most bankruptcy filers successfully protect their disability benefits. Protection depends on exemptions available in your state.
Exemptions are laws that shield certain income and property from creditors. Both federal and state governments provide exemption systems.
Some states let you choose between state and federal exemptions. Monthly disability payments usually receive automatic protection.
Bank Account Protection
Unspent disability benefits in your bank account need careful handling. You may need to use a specific exemption to protect these funds.
Many filers keep disability benefits in a separate bank account. Dedicated accounts only receive deposits from Social Security or VA.
Separate accounts make proving exemptions easier. They prevent disability funds from mixing with non-exempt income.
Lump-Sum Disability Payments
Disability claims often take months or years to process. Approved claims may include a lump-sum back payment.
Lump-sum payments aren’t automatically protected in bankruptcy. You’ll need to use a bankruptcy exemption to keep this money.
Common exemptions include state disability protections or federal wildcard exemptions. Plan carefully if you recently received a large payment.
Will You Keep Receiving Benefits After Filing?
Yes, bankruptcy won’t stop your disability benefits. SSDI, SSI, and VA disability payments have federal protection.
The bankruptcy court can’t take away your benefits. You’ll continue receiving payments during and after your case.
Exceptions to Payment Protection
Certain government debts can still affect your benefits. Back taxes and child support may result in garnishment.
Garnishment can happen whether you file bankruptcy or not. The bankruptcy discharge doesn’t eliminate these obligations.
Speak with a bankruptcy attorney if you’re concerned about benefit garnishment.
Key Considerations for Disability Recipients
Disability benefits create unique bankruptcy situations. Understanding the rules helps you protect your income.
Report your benefits accurately on all required forms. Use available exemptions to shield unspent funds in bank accounts.
Keep disability income separate from other money when possible. Proper planning ensures you maintain your benefits throughout bankruptcy.
Consider professional guidance for complex situations. Legal aid organizations offer free advice to qualifying individuals.