Are Your Social Security Disability Benefits Protected If You File Chapter 7 Bankruptcy?

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Are Your Social Security Disability Benefits Protected If You File Chapter 7 Bankruptcy?

Good news for those of you who are thinking of filing Chapter 7 bankruptcy and worried about protecting your Social Security disability benefits. Fortunately, in the case of Carpenter v. Reis, 20 CBN (8th Circuit 2010), the 8th Circuit Bankruptcy Appellate Panel ruled that in a Chapter 7 bankruptcy case, Social Security payments are excluded from the Chapter 7 bankruptcy estate pursuant to USC Section 407. This simply means that the debtor was able to keep his social security disability benefits.

Mr. Carpenter was rendered disabled by the Social Security Administration and was paid a lump sum payment of approximately $17,000 for his disability. The Chapter 7 bankruptcy trustee wanted to take the $17,000 disability payment and pay Mr. Carpenter’s creditors. Mr. Carpenter was able to show the bankruptcy court that the approximate $17,000.00 he wanted to keep was money he received from the Social Security Administration for his disability.

In ruling in Mr. Carpenter’s favor, the court ruled that his Social Security disability payment was not protected under 11 U.S.C. Section 522(d)(10) of the bankruptcy code because it was a benefit that Mr. Carpenter had already received.

However, in agreeing with Mr. Carpenter that the disability payment was protected in his Chapter 7 bankruptcy case, the Court ruled that it was protected under Section 42 U.S.C. Section 407, which states that no past or present Social Security payments are subject to bankruptcy law.

With that being said, what’s the lesson to be learned if you are thinking about filing a Chapter 7 bankruptcy? First, seek the advice of an experienced bankruptcy attorney who can evaluate the particular facts and circumstances of your situation. Each case is different and an experienced bankruptcy lawyer can tell you whether your social security disability payment can be protected.

Secondly, Mr. Carpenter or his Chapter 7 bankruptcy lawyer was smart because, in this case, Mr. Carpenter segregated his disability payment and was able to prove that the approximate $17,000 was actually from the disability payment and not some other source. This was a critical fact to Mr. Carpenter’s case.

If Mr. Carpenter had not been able to prove that the $17,000 he was trying to protect was actually from a social security disability payment, it is likely the result would have been different and he would have lost his disability payment. Don’t put yourself in that position.

For more information about this bankruptcy article visit Roger Ghai at www.chapter7attorneys.com or email roger@chapter7attorneys.com.


About the Author:
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Roger Ghai has been a practicing bankruptcy lawyer for twenty years and is a member of the National Association of Consumer Bankruptcy Attorneys. This bankruptcy law firm specializes in Chapter 7 bankruptcy and Chapter 13 Bankruptcy laws. Our mission is to obtain a fresh financial start for all of our clients.
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