Should You File for Bankruptcy If You're on Social Security?

petition to file bankruptcy

You’re getting non-stop calls and letters from creditors, and this is making you afraid to answer your phone or check the mail. Yet no matter how much they cajole or demand, you can’t pay these debts because your only income is from Social Security. What can you do?

Many people in your situation would do nothing if they don’t have assets that a creditor can seize. Social Security income generally can’t be garnished, so no matter how many demands they make or lawsuits they file, there’s very little your creditors can do.

However, as a Social Security recipient, you may want to deal with your debt situation now, so that the calls stop and you no longer have to wonder whether the knock on the door is from yet another process server with a summons and complaint. If you decide to declare bankruptcy, being on Social Security won’t be an issue. 

To put your mind at ease, these are the facts: Social Security income does not count when it comes to filing for bankruptcy.

Disability benefits and Social Security benefits are protected in most bankruptcy cases, and retirement benefits are safe in most cases too.

Let’s talk about your options.

What does it mean to declare bankruptcy?

If you owe money and you can prove that you are unable to pay it, you can file for bankruptcy: a legal process that is overseen by federal bankruptcy courts. A judge will study your assets and debt and determine whether you really are unable to pay, and according to what they find you may find your debt eliminated, reduced, or restructured with better conditions. 

The support of an experienced lawyer is strongly recommended since bankruptcy law follows complex processes in the United States courts. For example, although the most popular bankruptcy filings are under Chapter 7 or Chapter 13, you may also file for bankruptcy under 

What are the consequences of filing for bankruptcy?

img-icon-4If you have an income besides Social Security or possessions that can be sold (jewels, cars, real estate and the like), then the bankruptcy judge will most likely tap into some of those to repay a part of your debts. Under the bankruptcy code, some of your property can be exempt from this - an experienced lawyer can help you protect your property and wages under federal or state law, to your benefit.

Bankruptcy will protect your social security and release you from unpayable debt, but if you had co-signers for your loans, they can still be held responsible for part of the debt after you have filed for bankruptcy. 

A long-lasting effect of bankruptcy, and one that gives many people pause, is that it affects your credit report and lowers your credit score. A bankruptcy in your credit report will be a big red flag if you ask for a loan in the future, and financial institutions may decide to not lend you money or give you higher interest rates since you are considered a riskier subject. 

This negative information can stay on your credit report for up to 10 years. After your account has been eventually discharged, the status will change to “discharged” but will still be in your credit report. 

Are there debts that can't be forgiven?

In short, yes. Bankruptcy can help you eliminate debt such as credit cards and personal loans, but certain types of debts are not touched by bankruptcy. Here’s a handy list:

  • Court fines and penalties.
  • Court-ordered alimony.
  • Court-ordered child support.
  • Government fines or penalties.
  • Most student loan debt.
  • Reaffirmed debt.
  • Taxes owed to the U.S. government.

Types of Bankruptcy


There are 6 main types of bankruptcy. While as an individual, you are most likely to be filing for chapter 7 or chapter 13, here is the complete list:

  • Chapter 7 bankruptcy: Liquidation.
    • Chapter 9 bankruptcy: Municipalities.
    • Chapter 11 bankruptcy: Large Reorganization.
    • Chapter 12 bankruptcy: Family Farmers.
  • Chapter 13 bankruptcy: Repayment Plan.
  • Chapter 15 bankruptcy: Used in Foreign Cases.

Let’s go into Chapter 7 and Chapter 13 in more detail, shall we?

Chapter 7

Chapter 7 allows you to discharge debts like credit cards, utility bills, and medical invoices, which do not have a guarantor or collateral. These are known as unsecured debts, and they tend to move quickly in the bankruptcy courts (quickly meaning a few months).

There is a test you must pass to confirm you do not have sufficient income to meet your payments. If your Social Security payments are your only source of income, you will probably pass this test easily.

Keep in mind that property may be seized if you file under Chapter 7: if you own real estate, cars or other goods that are not protected by an exemption, they could be sold to pay part of your debt.

The bankruptcy trustee, a person that is appointed by the federal government, is in charge of deciding which assets are to be sold. 

If you have SSDI benefits, sometimes referred to as Social Security Disability benefits, under Chapter 7, these benefits are usually exempt, even in the case of a lump sum payment--however, it’s a complicated subject that requires an attorney to examine your specific situation. 

It might be the case that Chapter 7 isn’t your best choice. A lawyer can help you decide whether filing under Chapter 7 or Chapter 13 is a better option for you.

Chapter 13

Chapter 13 helps you restructure your debt into a 3-5 year payment plan that will cover all or part of your outstanding debt. In order to qualify for this, you must show you have sufficient income to meet the proposed payment plan, and this may be difficult if Social Security is your only source of funds. 

In Chapter 13, a judge and/or trustee might determine that part of your SSDI benefits are not exempt. This means that it will count as income to be used to satisfy your outstanding debts. 

Again, a good lawyer will look at your specific case and circumstances and advise you so you get the best results. 

Contact an Oklahoma Bankruptcy Attorney

Before you decide to file for bankruptcy, it’s a good idea to meet with an Oklahoma bankruptcy attorney to discuss your case. At the Law Offices of B. David Sisson, we often work with clients on Social Security and understand how stressful it is when creditors demand money that you don’t have. Attorney B. David Sisson has been certified as a specialist in consumer bankruptcy law by the American Board of Certification and will advise you on the best way to handle your situation. For more information or to schedule a consultation with Attorney David Sisson, please contact us.