If you’re receiving disability benefits and considering filing for bankruptcy, you may be wondering how this decision could impact your source of income. At Golson, McCracken Inc., we understand that this is a common concern for many of our clients across North Carolina, from Raleigh to Charlotte. In this guide, we’ll explore the relationship between disability payments and bankruptcy, providing you with the information you need to make informed decisions about your financial future.

Understanding Disability Payments and Bankruptcy

Before getting into the specifics, it’s important to understand that bankruptcy laws are designed to provide relief to individuals struggling with debt while also protecting certain essential income sources. 

Disability payments, which are often a lifeline for those unable to work, generally fall into this protected category.

Types of Disability Payments

There are several types of disability payments, and how they’re treated in bankruptcy can vary:

1. Social Security Disability Insurance (SSDI)
2. Supplemental Security Income (SSI)
3. Veterans Administration (VA) disability benefits
4. Private disability insurance payments

Each of these may be treated slightly differently in bankruptcy proceedings, but all have some level of protection.

The Impact of Bankruptcy on Disability Payments

The good news is that, in most cases, your disability payments will not be affected if you file for bankruptcy. Both federal and state laws provide strong protections for these benefits. Let’s break down how this works in different bankruptcy scenarios:

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, some of your assets may be sold to pay off your debts. However, disability benefits are generally exempt from this process. This means:

1. Your ongoing monthly disability payments will continue uninterrupted.
2. Any disability payments you’ve already received and have in your bank account are typically protected.
3. Future disability payments you’re entitled to receive are also protected.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves creating a repayment plan to pay off your debts over time. In this case:

1. Your disability payments are still protected and cannot be taken to pay creditors.
2. However, your disability income may be considered when determining your ability to make payments under your Chapter 13 plan.

Protecting Your Disability Payments in Bankruptcy

While disability payments are generally protected, there are steps you can take to ensure maximum protection:

Keep Disability Funds Separate – It’s advisable to keep your disability payments in a separate bank account from other funds. This makes it easier to identify and protect these funds if questions arise during bankruptcy proceedings.

Document Your Disability Income – Maintain clear records of all disability payments you receive. This documentation can be important if you need to prove the source of funds in your accounts.

Disclose All Income Sources – When filing for bankruptcy, it’s important to disclose all sources of income, including disability payments. Be as transparent as possible in bankruptcy proceedings.

Understand Your State’s Exemptions – While federal law provides strong protections for disability benefits, North Carolina also has its own set of exemptions that may offer additional protections. At Golson, McCracken Inc., we can help you understand how these exemptions apply to your specific situation.

Special Considerations for Lump Sum Payments

Receiving a lump sum disability payment, such as back pay for benefits you were owed, requires special consideration in bankruptcy proceedings. While these lump sum payments are generally protected, just like regular disability benefits, there’s an important caveat to keep in mind.

If you’ve used the lump sum to purchase assets, those assets may not enjoy the same level of protection in bankruptcy. This distinction underscores the importance of careful financial planning, especially if bankruptcy is on the horizon. To navigate this complex situation effectively, it’s important to consult with a knowledgeable disability advocate before making any significant purchases with a lump sum payment. 

At Golson, McCracken Inc., we can provide the guidance you need to make informed decisions about your lump sum disability payments and ensure maximum protection of your funds in the event of bankruptcy.

The Importance of Proper Planning

While disability payments are generally protected, proper planning is essential to ensure you navigate the bankruptcy process smoothly. This is where the expertise of Golson, McCracken Inc. can be invaluable. Our team of experienced disability advocates can help you:

1. Understand how your specific disability benefits will be treated in bankruptcy.
2. Develop a strategy to maximize the protection of your assets and income.
3. Navigate the complex interplay between disability law and bankruptcy.
4. Ensure all necessary documentation is in order before filing for bankruptcy.

Common Misconceptions About Disability Payments and Bankruptcy

There are several misconceptions about how disability payments are treated in bankruptcy. Let’s clear up some of these:

Misconception 1: “Filing for bankruptcy will stop my disability payments.”

Reality: Bankruptcy does not affect your eligibility for disability benefits or stop your payments.

Misconception 2: “I’ll lose all my savings from disability payments in bankruptcy.”

Reality: Disability payments, even those saved up over time, are generally protected in bankruptcy.

Misconception 3: “I can’t file for bankruptcy if I’m on disability.”

Reality: Being on disability does not disqualify you from filing for bankruptcy. In fact, it may provide additional protections.

Misconception 4: “My disability income won’t be considered in bankruptcy calculations.”

Reality: While protected, your disability income may be considered when determining your overall financial picture in bankruptcy.

The Role of Disability Advocates in Bankruptcy Proceedings

At Golson, McCracken Inc., we understand that facing bankruptcy while managing a disability can be overwhelming. Our role as disability advocates extends far beyond just helping you secure your benefits. 

We’re here to provide comprehensive guidance on how bankruptcy may impact your disability benefits and help you understand your rights and protections under both disability and bankruptcy laws. Our team assists in preparing the necessary documentation for your bankruptcy filing and represents your interests throughout the entire process, ensuring your disability benefits remain protected. 

Additionally, we offer support in communicating with bankruptcy trustees and creditors about your disability status and income. Our goal is to alleviate the stress and complexity of navigating bankruptcy while managing a disability, providing you with expert advocacy and support every step of the way.

Making Informed Decisions

The decision to file for bankruptcy is significant and should be made with a full understanding of its implications, especially when you’re relying on disability benefits. Here are some factors to consider:

1. Your Overall Financial Situation – While your disability payments may be protected, it’s important to look at your entire financial picture. Are there other assets that might be at risk in bankruptcy?
2. Alternative Debt Relief Options – Before deciding on bankruptcy, explore other options like debt consolidation or negotiation with creditors. Sometimes, these alternatives can provide relief without the need for bankruptcy.
3. Long-term Financial Goals – Consider how bankruptcy might affect your long-term financial goals. While it can provide immediate relief, it also has long-lasting implications on your credit and financial options.
4. Timing of Your Bankruptcy Filing – If you’re expecting a lump sum disability payment, the timing of your bankruptcy filing is important. Consulting with an expert can help you determine the best time to file.

Why Choose Golson, McCracken Inc.?

Navigating the intersection of disability benefits and bankruptcy law requires specialized knowledge and experience. 

If you’re receiving disability benefits and considering bankruptcy, don’t navigate this complex process alone. The team at Golson, McCracken Inc. is here to help you understand your options and protect your financial future.

We invite you to contact us for a free consultation. Our experienced disability advocates serve clients throughout North Carolina, including Raleigh, Sanford, Mebane, Greensboro, and Charlotte. We’ll review your specific situation, explain how bankruptcy might impact your disability benefits, and help you make the best decision for your financial future.

Remember, your disability payments are a lifeline, and with the right guidance, you can navigate bankruptcy while keeping this essential income protected. Let Golson, McCracken Inc. be your advocate and guide in this important financial decision.

Contact us today to schedule your free consultation and take the first step towards financial clarity and peace of mind.