Bankruptcy and Social Security

Social Security benefits are protected from creditors under LA Rev Stat § 46:111, including in bankruptcy. The purpose of Social Security and other welfare systems is to help people get by, both when they reach retirement age or if they become disabled. If we were to receive these government benefits just to hand them over to lending companies, then the money is not helpful. Therefore, the policy reason behind this statute is that the State of Louisiana wants to ensure that the money designed to feed and house individuals goes toward that purpose and not into the pockets of lenders.  

Social Security benefits are protected from creditors under LA Rev Stat § 46:111, including in bankruptcy. The purpose of Social Security and other welfare systems is to help people get by, both when they reach retirement age or if they become disabled. If we were to receive these government benefits just to hand them over to lending companies, then the money is not helpful. Therefore, the policy reason behind this statute is that the State of Louisiana wants to ensure that the money designed to feed and house individuals goes toward that purpose and not into the pockets of lenders.  

This same thinking also applies to retirement accounts and pensions. The Government incentivizes everyone to build up retirement savings in additional to social security through tax breaks so that people can be better positioned to take care of themselves during retirement. So the State of Louisiana protects all sorts of pensions and retirement accounts under most circumstances. Retirement accounts are protected under LA Rev Stat § 13-3881 (D) and pensions are protected under a variety of state statutes, too numerous to list here.

 

This policy is also reflected in the Federal Statutes, however, the Federal exemptions do not apply in Louisiana. 

It is important to keep in mind that even though these types of funds are protected from creditors, they can still play a role in which type of bankruptcy you would file for. You may need to use the income to show that a Chapter 13 is likely to work, or your amount of income could affect your eligibility for a Chapter 7 Bankruptcy. Also, if these funds are mixed with other sources of income that could have an impact on what is protected by the exemption statutes. It is always best to consult with an attorney to make sure that the exemptions are applied appropriately and that your income and assets are evaluated. 

Are Disability Benefits Protected By Bankruptcy?

Yes, disability benefits are protected in Bankruptcy under LA Rev Stat § 46:111. It is not uncommon to need to file for bankruptcy when a person suffers from a disability because it means there is a set of circumstances that restrict that person’s ability to generate income. That is the whole purpose of bankruptcy, to give you relief when you have limited sources of income or have had a reduction in income. 

Disability can also be protected for past due benefits. A very common situation is that a client has applied for disability and the benefits date back for a period of months or years, but those benefits have not been paid yet. The benefits can then be in the thousands of dollars or tens of thousands by the time they are received, but still be protected by the exemption statute LA Rev Stat § 46:111. Consult an attorney regarding bankruptcy and disability benefits to make sure that any funds that you are due keep their protected status. 

Can I Declare Bankruptcy If My Only Income Is Social Security?

YES! Social Security benefits are just one factor in filing a bankruptcy. Obtaining Social Security benefits is often a point in a person’s life when a bankruptcy can be appropriate because it often means a reduction in your income. Social Security benefits are modest when compared to wage income. Such a change in household income can be significant. That reduction in income frequently results in the inability to continue to pay your debt obligations. That is why bankruptcy is helpful. If you have a reduction in income because you are now relying on Social Security instead of wage earnings, you should consult an attorney to see if bankruptcy is an appropriate option for you. There are still other factors, such as what assets you have, but a change to Social Security income is often a good time to consider bankruptcy. If bankruptcy is appropriate for you it can mean that those benefits go to your food and housing instead of your creditor bills.