My wife and I made the decision to open a residential cleaning business. We needed enough money to get the equipment, do a bit of advertising and get the licensing and insurance to protect ourselves and our customers. For about two years, things went very well, but then, things took a terrible spin for the worst after we hired a few employees to help us with the workload. Since then, we have gone bankrupt and have gone back to working full time jobs. If you are struggling with your business and considering bankruptcy, this blog can give you some answers to the many questions that you have.
Filing for chapter 13 bankruptcy is a good way to get your finances back on track, because this type of bankruptcy focuses on helping you pay off your bills while also protecting you from creditor harassment. Since Social Security disability payments are typically protected from seizure in chapter 7 bankruptcy by federal and bankruptcy laws, you may be wondering what the court does with this money in a chapter 13 case. Here is how your disability payments factors into a chapter 13 bankruptcy filing.
It's Excluded from the Calculation of Average Income
In a chapter 13 bankruptcy case, the trustee will calculate your disposable income by subtracting your living expenses from your income. To get your income, the trustee looks at all the money you received over the previous six months, takes an average, and uses that number to determine how much you have to pay into your chapter 13 bankruptcy as well as the number of months you are required to pay it.
However, Social Security disability payments are typically excluded from the income calculation. In some areas, you are not even required to disclose that you receive these payments. This means you'll have more disposable income and you won't have to pay as much into your chapter 13 bankruptcy plan.
At the same time, this may mean you'll have to pay into the plan for longer. For example, debts that would have been paid off in three years if your disability payments had been included may now take four or five years to be eliminated.
Additionally, the length of time you have to pay into your plan will be based on how your average income matches up with the median income in your state. You may only have to pay into the plan for three years if your income falls below the state median and for up to five years if it is more than the median.
Conversely, It May Be Used to Qualify You for the Filing
To qualify for a chapter 13 bankruptcy, you must have enough disposable income to pay off most or all of your debts within 36 to 60 months (3 to 5 years). If you don't have sufficient income to pay your debts off by the 60th month, the judge will reject your petition and/or make you convert your case into a chapter 7 bankruptcy.
Therefore, to maintain your eligibility, the trustee may let you include your Social Security disability payments in your income calculation. From here, the case will proceed as normal. The trustee will calculate your disposable income and length of your payment plan.
However, now the plan depends on your disability payments, which could be troublesome if you lose your benefits while your case is active. It's best to consult with an attorney to determine whether you should use your disability benefits to qualify for a chapter 13 bankruptcy or convert your case to a chapter 7.
Lump Sum Disability Checks May Be Up for Grabs
If you have received or are expecting a lump sum payment of Social Security disability benefits, you may be required to pay some or all of that money into your plan. When you receive the money, the amount and the jurisdiction you live in will determine how the bankruptcy court handles these funds.
In general, if you are within the first 36 months of your bankruptcy and/or your monthly income puts you above the state's median level, the court may consider the lump sum payment to be disposable income and require you to submit the money to the court to be distributed to your creditors. On the other hand, if your income was below the median and/or you are past the three-year mark, then the court may allow you to keep the funds.
Social Security disability payments can present some unique challenges when filing for bankruptcy. It's best to consult with a Social Security disability attorney or a bankruptcy lawyer for assistance with these and other issues. Visit websites like http://www.morrisonmurfflaw.com for more information.
Share