Are Social Security Benefits At Risk In Bankruptcy?

The Tenth Circuit Court of Appeals recently held that Social Security benefits are not part of a debtor’s “projected disposable income” for determining monthly payments in a Chapter 13 repayment plan. The case, In re Cranmer, No. 12-4002 (10th Cir. Oct. 24, 2012), involved a Chapter 13 debtor who committed only a part of his $1,940.00 monthly Social Security benefit to repaying his creditors. He also excluded the entire Social Security sum when figuring his total monthly disposable income through the means test Form B22C.

In plain English, the debtor claimed that he could choose to use his Social Security benefit to repay some creditors, like a house or car payment, but the bankruptcy trustee could not force him to pay other debts (like medical or credit cards) with the Social Security benefit. The Tenth Circuit agreed, citing that the Bankruptcy Code excludes Social Security benefits from the debtor’s disposable income and projected disposable income calculations.

Social Security benefits are generally protected during bankruptcy. Social Security checks are not subject to garnishment or seizure from non-government creditors. Consequently, Social Security income does not drive up a retiree’s gross income for purposes of the bankruptcy means test, and the trustee (who stands in the creditor’s shoes during bankruptcy) cannot compel the debtor to pay creditors out of Social Security income. This strategy is a great benefit to many older Americans who need bankruptcy relief without committing all of their retirement income to debt repayment.

If you receive Social Security benefits and need debt relief, speak with an experienced attorney about your bankruptcy options. You could be eligible to discharge many burdensome bills, retain your home or cars, while keeping all or most of your retirement income.