Bankruptcy can provide a way for you to get a fresh start from financial hardship. However, if you rely on Social Security benefits, you may worry about whether bankruptcy will affect your payments.
The good news is that Social Security benefits are generally protected. Still, there are situations where bankruptcy could impact how you access your funds.
How Social Security benefits stay safe from creditors
During bankruptcy, creditors cannot access your Social Security benefits, including retirement, disability (SSDI), and Supplemental Security Income (SSI). Federal law prevents creditors from taking these benefits to pay off debts. This means that even if you file for Chapter 7 or Chapter 13 bankruptcy, creditors cannot directly take your Social Security payments.
However, the way you handle your Social Security money can affect its protection. If you keep your benefits in a separate bank account and do not mix them with other income, they are easier to protect. If you combine them with other money, such as wages from a job, creditors might claim that part of the funds have no protection.
When you owe money to the government
While most creditors cannot take Social Security benefits, the government can collect money for certain debts. If you owe back taxes, child support, alimony, or federal student loans, the government can take a portion of your benefits. The government calls this process an offset.
If you file for bankruptcy, you may be able to reduce or eliminate some government debts. However, the court usually does not discharge child support and alimony in bankruptcy. If you owe these types of debts, you may still face Social Security benefit reductions.
Bankruptcy can provide relief from overwhelming debt, but it is important to know how it may affect your Social Security benefits. Keeping your benefits separate and understanding which debts can still affect your payments can help you protect your income.