You’ve spent years working hard to support your family and build your retirement savings. However, when debt becomes overwhelming, breaking free can seem impossible. If you’ve exhausted all other debt relief avenues, bankruptcy might appear to be your only route to financial recovery. Many people hesitate to consider this option due to concerns about how it might affect their Social Security benefits. If you are unsure about the impact bankruptcy could have on your Social Security, please continue reading to discover how our seasoned Gillette Bankruptcy Lawyers can guide you through these challenging times.
What Happens to Social Security During Bankruptcy?
Understanding the fate of your valuable assets is crucial when filing for bankruptcy. In a Chapter 7 bankruptcy, your non-exempt assets are typically liquidated and sold to repay creditors. For Chapter 13, your income determines a monthly payment to a trustee, who then distributes these payments to your creditors over a three-to-five-year repayment plan, depending on the unique circumstances.
Generally, Social Security benefits are protected in bankruptcy proceedings. They are considered federally “exempt,” meaning they are not included in the bankruptcy estate and creditors cannot seize them. If you file for bankruptcy in Wyoming, your Social Security benefits will be protected as long as they are not commingled with other funds. This is because it can be challenging to prove how much of the funds in a savings account, for instance, are from Social Security rather than another source. To avoid this and maintain protected status, you should keep these funds separate.
It’s important to note that there are some exceptions for certain debts like federal taxes, student loans, and child support. Creditors may be able to garnish Social Security benefits if you fall behind on these payments. Although bankruptcy won’t affect your eligibility for Social Security benefits, the amount of debt you can discharge in bankruptcy could potentially affect your eligibility for future benefits.
Are My Other Retirement Accounts Protected?
During bankruptcy, most retirement accounts are safeguarded by the Employee Retirement Income Security Act (ERISA) of 1974. Federal and state laws are typically shielded from creditors during bankruptcy proceedings, such as 401 (k)s, 403(b)s, IRAs, and pensions. However, specific accounts may have different liabilities and exceptions. For instance, while Traditional and Roth IRAs are protected under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), this protection is limited to $1,512,350 per individual. Any funds exceeding this amount may be subject to repayment to creditors.
Navigating the complexities of bankruptcy can feel overwhelming. Yet, it’s crucial to recognize that the guidance of an experienced bankruptcy attorney is vital. At 307 Bankruptcy, we are dedicated to securing the most favorable outcome for your unique situation. Contact us today to discover how we can support you through this difficult time.
