Can I Keep My Social Security Income During My Chapter 13 Bankruptcy?

If you receive Social Security benefits, you're likely wondering if you'll have to turn them over as part of your plan payment. Although most people can keep Social Security payments in Chapter 13 bankruptcy, whether you will be able to do so will depend on your total income and expenses, and the practices of your local court.

How Chapter 13 Bankruptcy Works

If you file for Chapter 13 bankruptcy, you can keep your assets. In exchange, you must repay your creditors in full, or in part, through your Chapter 13 repayment plan.

The repayment period lasts between three and five years (less if you pay off your debts in full at an earlier date). When the repayment period ends, the court will discharge (wipe out) the remaining balance on qualified unsecured debts (exceptions exist). You can find out about dischargeable debts by reading Debts Discharged at the End of Chapter 13 Bankruptcy.

Disclosing Social Security Income in Chapter 13 Bankruptcy

When you file your case, you'll tell the court, your creditors, and the Chapter 13 trustee appointed to oversee your matter how much you make, as well as the amount of your bills. Why? Because your repayment plan amount will depend on your income and expenses. Specifically, the calculations used in the means test determine how much disposable income you can afford to pay.

You'll provide this information when you fill out the official bankruptcy forms. The forms provide instructions that are simple enough for the average person to provide the requested information without a problem. (Keep in mind the forms don't explain what will happen to your income and property in your case—you'll need to understand the effect of bankruptcy law.)

Two of the forms require you to disclose your income, but only one of the forms asks for your Social Security income. The other does not.

• Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period. This form is part of the means test. The result determines how much disposable income you have to pay your nonpriority unsecured debt, such as credit card balances, medical bills, school loans, and personal loans. You'll be allowed to subtract expenses from your average monthly income for the prior six months. For instance, you'll deduct money for rent or a house payment, car expenses, child support payments, taxes, and the like. Some expenses are your actual expenses, while others are allowed amounts. Your Social Security funds won't be included in the calculations.
• Schedule I: Your Income. This form asks you about all current income, including Social Security funds. Your Social Security amount will be figured into your current total monthly income—the amount available to pay monthly bills.

You'll disclose the actual amount of all of your current expenses on the Schedule J: Your Expenses form.

You'll Likely Get to Keep Your Social Security Income

It's likely that you're asking yourself how these forms work together—and it's a very good question. While the means test determines your disposable income, Schedule I: Your Income and Schedule J: Your Expenses can be used to increase your disposable income.

Here's how they work.

• Means test forms. These forms tell the court how much disposable income you have available. You'll use this figure when you create your repayment plan. Your Social Security funds won't be considered in the calculations.
• Income and expense forms. If after comparing your current income on Schedule I: Your Income, to your current expenses on the Schedule J: Your Expenses, it appears that you have a surplus of money each month, then an argument might be made that you should be paying more than the disposable income amount calculated on the means test. If the court raises your payment, it will include at least some of the Social Security funds that weren't included in the initial disposable income determination.

Example. Suppose that you received $1000 per month in income and $200 per month in Social Security in the six months before your Chapter 13 filing. Your Social Security income isn't included in disposable income on the means test, making your average income $1,000 (not $1,200). On the Your Income form, your income would likely be $1,200 per month. If your monthly expenses are $900, then according to the means test, your disposable income would be $100 ($1,000-$900). However, your actual disposable income according to the Your Income and Your Expenses forms would be $300 ($1,200-$900). Whether you'd have to pay $100 or $300 per month will likely depend on the practices of your particular court.

(Learn more about how the Chapter 13 plan works, how much you must pay, and more in Chapter 13 Repayment Plan.)

Determining Your Bankruptcy Court's Approach

Chapter 13 trustees who require the inclusion of Social Security income argue that it is not fair to creditors to allow debtors to keep their Social Security income that is not needed for necessary expenses because the debtor could use that money to pay more per month, thus fulfilling the intent of Chapter 13.

There are several ways to find out what the approach regarding Social Security income is in your bankruptcy jurisdiction.

• Consult with a local bankruptcy attorney.
• Review Chapter 13 filings in your district. You can find these through PACER (Public Access to Court Electronic Records). Although it is free to get an account, PACER does charge per page to download documents.

Be aware that other factors come into play when determining your monthly repayment plan. For more information, see Keeping Property in Chapter 13 Bankruptcy.