Will Filing for Bankruptcy Affect My Disability Benefits?
In New Mexico, all government benefits are exempt from liquidation in Chapter 7 bankruptcy. They are also exempt from income considerations for the purposes of forming payment plans in Chapter 13 bankruptcy. There may be exceptions to consider in some cases, particularly in the case of lump-sum payments made for Social Security Disability Insurance (SSDI), but for the most part, careful planning and preparation can allow you to exempt all forms of state and federal benefits.
When you are filing for bankruptcy, it is crucial to consider aspects such as any ongoing benefits you may receive. You can work with an experienced New Mexico bankruptcy attorney to help you navigate the process and ensure you are maximizing the exemptions available to you under both state and federal laws.
For questions and assistance with filing for bankruptcy, you can turn to New Mexico Financial & Family Law. We have been assisting individuals in Albuquerque and throughout the state with filing for all forms of bankruptcy. Schedule a confidential, no-risk case evaluation with a bankruptcy lawyer near you when you call (505) 503-1637 or contact us online.
New Mexico Law Provides Blanket Exemptions for All Government Benefits
There are three major protections to consider when filing for bankruptcy as a recipient of disability benefits.
First, generally speaking, disability payments like SSDI and Supplemental Security Income (SSI) are typically only given when an individual meets a certain standard of need. Because of this, the recipient is likely to be below the threshold where any benefits could be considered income for the purposes of calculating Chapter 13 repayment plans.
Further, there are also federal protections in place exempting SSI and, in most cases, SSDI benefits from liquidation during Chapter 7. All Veterans’ Affairs (VA) benefits, including VA disability, are also exempt from consideration during any bankruptcy proceedings. These protections mean that, in most states, recipients of federal disability benefits of nearly any form will not have to worry about their income being affected by bankruptcy.
On top of all this, the state of New Mexico provides specific protections for government-awarded benefits of nearly any type. This can not only include federal benefits but also public benefits related to occupational disease disability, in addition to unemployment insurance and workers’ compensation benefits.
When filing for any form of bankruptcy in New Mexico while receiving disability, be sure to review your choices between state exemptions and federal exemptions to be certain that the disability benefits you want to protect are exempted.
A Note About SSDI Lump Sum Payments
One possible gray area for exemptions can arise when an SSDI recipient receives a lump sum payment and deposits it in their regular banking account. In order to ensure that the income is exempted, the recipient must be prepared to demonstrate that the payment came directly from the Social Security Administration (SSA) for the purposes of compensating you for a disability.
In rare cases, a bankruptcy case trustee may try to dispute the origin of the lump sum income, especially if it is “commingled” with other finances. To avoid this situation, it may be beneficial to direct SSDI payments and other similar benefits to a specific account. Speak to an attorney about this situation if you intend to file bankruptcy and have received a lump sum payment in the past 6-12 months or so.
Bankruptcy Can Protect You From Having Your Disability Payments Garnished
Some individuals who receive SSDI or another form of disability will hesitate to file for bankruptcy because they fear it may affect their ability to continue collecting that income. In reality, bankruptcy offers further protection of these benefits than continuing to owe money to your creditors. This is because, in some cases, creditors may be able to garnish your disability benefits and other income in order to pay down your debts. Because of this risk, it is actually beneficial for many individuals receiving disability to resolve unpaid debts through bankruptcy.
Speak to a New Mexico Bankruptcy Lawyer With Knowledge and Experience
At New Mexico Financial & Family Law, we understand the fears and worries that can come with deciding to undergo bankruptcy. We will help you evaluate all available options so that you can decide for yourself if bankruptcy is in your best interests. In the event you decide to file, we can assist you with protecting your disability income while helping you manage your case from start to finish.
Learn more about bankruptcy and the protections that could be available to you when you call (505) 503-1637 or contact us online to schedule your confidential, no-risk consultation.