In my law practice, I have handled both bankruptcy and Social Security disability cases. Unfortunately, with delays in the Social Security system approaching 3 years, more and more of my disability clients find themselves considering bankruptcy.
What happens, therefore, if you decide to file for bankruptcy while you are waiting for your Social Security decision? What happens if your SSDI or SSI case is approved the week after you file for bankruptcy? Can you keep your past due “lump sum?” Does your attorney get paid?
If you have a pending Social Security application, you need to let your bankruptcy lawyer know about it. Bankruptcy lawyers hate surprises and pending Social Security benefits are certainly relevant to a bankruptcy evaluation.
Under the current bankruptcy law, Social Security benefits are not countable for means test purposes but they may be countable for budget purposes. So, if you do get approved for benefits while your bankruptcy is still active, you may need to amend your budget.
In my view, bankruptcy works best when there are no changes during the course of your case – whether you file Chapter 7 or Chapter 13. The addition of, say, $1,500 per month to a bankruptcy budget will change things and you need to know in advance what this change will mean.
The question on the mind of most Social Security applicants has to do with the lump sum payment – which represents months or years of “past due benefits.” Can you keep this lump sum? The answer is “it depends.” It depends on your State’s exemption laws and the practice and procedure in your local bankruptcy court.
In the Northern District of Georgia, where I practice bankruptcy, I have successfully argued that my client’s Social Security disability payments are exempt assets pursuant to Georgia’s exemption statute, which makes exempt a “debtors right to receive a Social Security benefits.” I take the position that the monthly benefits would have been exempt and that the debtor should not lose his lump sum check because Social Security took two to three years to issue payment.
Every State has its own exemption rules. And every bankruptcy filing jurisdiction has most likely reached a consensus about this issue. I suspect that in some jurisdictions, the trustee will ask for some of the lump sum. Perhaps there are some where the entire lump sum is in play. The point – ask your bankruptcy lawyer. It may change when your file and what bankruptcy chapter you choose.
Similarly, you need to tell both your Social Security lawyer and your bankruptcy lawyer about both cases. Your Social Security lawyer is entitled to get paid for his efforts. He may need to file a special application in bankruptcy court to be approved as special counsel. He may also need to file a motion for approval of his fees.
The bottom line: advise both your bankruptcy lawyer and your disability lawyer about your respective cases. Ask your lawyer to sketch out in writing what you can expect. I can imagine nothing more frustrating than to hang on for three years waiting for that past due benefit check, only to find that a trustee has grabbed it.