Income and Bankruptcy
When filing for bankruptcy your income will be assessed as well as your debts. Traditional sources of income are easily accounted for in bankruptcy. However, many people that are suffering with overwhelming debt earn their money through non-traditional income sources, such as social security or workers compensation. Can these funds be seized in bankruptcy?
Bankruptcy Laws
Fortunately, bankruptcy laws do not allow for benefits paid through government funded income sources to be eligible for seizure in bankruptcy. Bankruptcy exemptions protect these assets in the bankruptcy filing. Specifically, federal bankruptcy exemptions protect the following benefits during bankruptcy:
- Public assistance benefits
- Social Security benefits
- Disability benefits
- Unemployment compensation benefits
- Veterans’ benefits
- Crime victim compensation benefits
- Life Insurance benefits
Although the bankruptcy laws protect these benefits during the process, these benefits could still influence the case. Each state has their own bankruptcy laws, which may have different benefits exemptions. Additionally, these benefits are used to calculate the income level of the filer, which is used in the means test to determine eligibility for Chapter 7. If these benefits are enough to exceed the median income of the state of residence, the filer may not be eligible for Chapter 7 and may be required to pursue Chapter 13 instead.
