Many disabling conditions prevent any form of gainful employment. Additionally, these conditions may require special medical care or accommodations. This often creates a financial burden for victims. In extreme cases, people who live with disabilities in Illinois may face financial challenges they cannot meet.
Sadly, one financial advice company recently reported that medical debt is the leading cause of bankruptcy in the U.S., according to the Atlantic. Unfortunately, even people who receive disability benefits for their conditions may face mounting debt. These individuals should understand the potential impact filing bankruptcy could have on their benefits.
Typical exemptions
If an individual files for Chapter 7 bankruptcy, current and future Social Security Disability benefits are generally protected. Most SSD recipients need these ongoing payments to support themselves and any dependents while they are unable to work gainfully. Thus, these benefits qualify for exemption from the property that a trustee can liquidate to pay off creditors.
Supplemental Security Income payments are also usually exempt from outside claims in Chapter 7 bankruptcy. However, other ongoing disability benefits do not receive the same blanket protection. For example, the amount of private and state disability benefits an individual can receive may be capped. The limit is based on the exemption amount that Illinois laws establish.
Complicating factors
There are a few circumstances in which SSD benefits are not automatically exempted or fully safe from loss during bankruptcy. These include:
- Lump sum payments. The benefit recipient must provide documentation to show the payment was backpay from the Social Security Administration. The payment could be taken if it appears to be some other form of income.
- Excessive lump sum payment. In some jurisdictions, a lump sum SSD payment is only protected if its full value is necessary for the support of the recipient. The trustee may attempt to take any amount that is considered excessive.
- Chapter 13 bankruptcy. Ongoing SSD benefits should also be exempt in this type of bankruptcy. However, benefit payments may be factored into the debt repayment plan, according to AARP. Recipients should look carefully over the plan to make sure their disability benefits have not been treated as disposable income.
Social Security Disability and bankruptcy laws are both complex on their own. Understanding areas of overlap between these laws can be difficult. SSD recipients who face bankruptcy should consider meeting with both a Social Security Disability attorney and a bankruptcy attorney. Doing so can help an individual fully understand the potential costs and consequences of filing bankruptcy.
