Can creditors take Social Security Checks and welfare?
Your social security check is generally protected. When you file bankruptcy and calculate the means test, the stimulus check is not a part of the income trustees can use as disposable income to prevent you from filing bankruptcy as a Chapter 7. Creditors can take your welfare or social security funds as soon as they are mingled with other income from a bank account. Child support alimony, student loans, and taxes can take some social security and welfare funds.
Social security checks are not a part of the means test income. The Bankruptcy trustee program does not directly take social security income from debtors who filed for bankruptcy. However, it is possible to lose social security and welfare funds indirectly.
This article will focus on how bankruptcy takes stimulus checks, how you can protect stimulus payments, and your responsibility in bankruptcy.
Social Security and welfare Payments in Bank Accounts
A problem does exist when you convert the social security check into a bank deposit or asset. Some states have very small exemptions that protect money in a bank account.
Indiana, for instance, only allows a debtor to have about 300 dollars in their bank account at the moment of filing. Put 3,000 dollars into a bank account and file for bankruptcy, and the bankruptcy trustee will take 2700. The exemption is only 300.
Buying Property Before Filing Bankruptcy
The same thing happens when social security payments are used to buy a car that has too much equity. If you cannot exempt the auto, bankruptcy trustees or creditors can take the car or any non-exempt item even though you medically or otherwise need it.
You think of a social security payment as a welfare check. The bankruptcy estate is any asset the trustee can use to benefit creditors. A bankruptcy trustee is essentially just a judicial creditor. A creditor who has gotten a judicial lien. Exemptions allow you to keep some of that property, but if you exceed the exemptions, you can lose the property you need to save.
How Do You Protect Social Security Payments or Welfare Payments
Social security, and welfare are generally not attachable by bankruptcy trustees and creditors. They don’t lose that protection if the checks are in a separate account.
Bankruptcy and Mixed Assets
As soon as you mix welfare or social security checks in with other deposits from a full-time or part-time job, they lose that protection. If you receive government benefits, they should be the sole source of deposits in an account.
Earned income should go into another account. A credit card debt collector can attach a tax refund, stimulus check, or social security check if it is intermingled with other money and funds.
Chapter 7 and Social Security Money
In Chapter 7, a bankruptcy estate includes all of your possessions. A Chapter 7 trustee is paid from the money he turns over to the creditors, plus about 60 dollars for reviewing the petition.
During Covid, the CARES Act did not exclude stimulus checks or recovery rebates from being “property of the estate.” The same rules protect social security and welfare benefits. It is acceptable to take any social security income as soon as it is mixed with other funds and pay creditors. But just because he has the right to do it does not mean it is right. Most trustees will abandon the welfare benefits and social security as an asset if it is small. However, debt collectors will take the assets.
The U.S. Trustee Program Directive
During covid the U.S.T. program asked trustees not to seize the $600 stimulus payment because the stimulus funds were for the purpose of spending and stimulating the economy. The bankruptcy process could defeat the purpose of the American Rescue Plan Act if the recovery rebate were part of a debtor’s repayment plan.
How to Protect Social Security and Tax Checks When You File Bankruptcy
Paying unsecured debt does not help the personal situation of eligible married couples who depend on social security or tax credits and tax refunds. The fresh start the Internal Revenue Code is trying to give through recovery rebates was not given a specific exemption so it could be protected. But the law meant social security to pay for essentials. Filing bankruptcy should not take a recovery rebate or welfare from essential items to pay the debt.
Spending Social Security or an Asset Before Filing Bankruptcy
To ensure Trustees can not get an asset, the law allows a couple to spend the asset, so Chapter 13 or Chapter 7 does not take it. There is also a wildcard exemption and household exemption, which should cover social security and welfare funds.
You can convert a non-exempted asset like 13,000 in cash by buying 13,000 in furniture, which is perhaps only worth about 3,000 as used furniture after you buy it. The furniture you can keep as household goods which has a 17,000 exemption limit in 2023. Recently purchased clothes or furniture may benefit you, but it has little or no value as an asset. If your wife wants shoes and dresses or a new refrigerator, now is the time. If you use up exemptions and have $5,000 too much, think about back to school, clothes, a new phone, laptop, and items you would purchase anyway. These items can often be exempted and kept when cash or bank funds can’t be.
Can Creditors Take Social Security Checks welfare or Stimulus Payments
The federal government issued stimulus payments in 2020 and 2021. In 2022 stimulus funds and tax benefits continued to be paid to victims of the pandemic. Every law firm that files bankruptcy cases is a debt relief agency by an act of Congress. We are required as bankruptcy attorneys in our role in the attorney-client relationship to help you retain the items you need for a fresh start. This includes your welfare or social security benefits in any bankruptcy case and debt collection cases.
Your Duty in Bankruptcy
Your first responsibility is to ensure you have the items you need to start over with a budget that provides for you and your dependents. These assets belong to you and your dependents. Congress meant your social security for you, not debt collectors. An attorney who knows the law can help you keep essential items, including social security funds, instead of applying it to your debt.
After providing for your family comes a duty to repay debt.
Researching if Creditors can Take Social Security Checks
A bankruptcy attorney will know the bankruptcy law and how to keep your tax refund. A substantial amount of information is on our website on how a bankruptcy should be filed. Our website breaks this down into four simple steps: gathering the documents, taking the required class, filling out the intake, and preparing your bankruptcy with an attorney. We have created this website and a manual for you.
Instead of hiring an attorney based on attorney advertising, hire him based on his ability.
Contact Us for a Free Consultation!
We have a free consultation for anyone who needs advice on a foreclosure or bankruptcy. Worrying over your tax refund or whether your bank account is safe should not keep you from filing for bankruptcy if you need to. Your welfare checks or social security is part of the disposable income you need for the bankruptcy to work. It does not belong to the Chapter 13 trustees or belongs to a repayment plan for debt.
Resources for Bankruptcy
Getting Started with Your Bankruptcy
Louisville, Kentucky Bankruptcy Forms
Getting Your Fresh Start Through Bankruptcy
Your Fresh Start on a New Budget with Bankruptcy
Nick Thompson – Kentucky Foreclosure & Bankruptcy Attorney
If you are considering bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
