Can Bankruptcy Affect My Right to Receive Social Security Disability Benefits?

What effect does bankruptcy have on Social Security disability benefits? Should you hold off on filing for disability until after you have filed for bankruptcy?

As a practical matter, it probably does not matter if you apply for Social Security disability before or after you file your bankruptcy. In most locations around the country, you can expect to wait two to three years before you will get a decision. And, unlike Social Security retirement, you have the burden of proving your entitlement to Social Security disability - it is not automatic.

Congress speciifically excluded Social Security disability benefits from the median income test calculations. This means that your Social Security benefits do not count when calculating your household income for median income/means test purposes.

Further, there is a good chance that your on-going Social Security benefits will be considered as an exempt assets, although you should discuss with your lawyer about whether any lump sum owed you for past due benefits is exempt.

On the other hand, on-going Social Security benefits are counted when you create your bankruptcy budget (Schedules I and J), so your SSDI benefits may change your disposable income picture. If you are in a Chapter 13 and receive your Social Security disability award, you and your lawyer may need to modify your plan. Your Social Security lawyer may also need to seek Bankruptcy Court approval for his fees.
In any case, filing bankruptcy does not cancel or impact your right to receive Social Security benefits. As has been pointed out repeatedly on this blog, you do not lose your rights by filing bankruptcy.

If you are considering bankruptcy at the same time you are thinking about filing for Social Security, you should speak to both a Social Security disability lawyer and a bankruptcy lawyer before filing any paperwork so that you and your lawyers understand your situation in full and can advise you properly regarding timing. If you have already filed for disability and are waiting for a decision, make sure to reveal this information to your bankruptcy lawyer. Your bankruptcy lawyer, in particular, can do a better job for you if he or she does not have to face surprises.