By Ryan C. Wood

A number of issues that come up in the real world are not good in once in the bankruptcy world.  Receiving a lump sum social security payment is one of them.  There are many people that are about to file for bankruptcy  or have already filed for bankruptcy and realize that they will be receiving a lump sum payment from the Social Security Administration for payment owed to them for prior months (sometimes years).  At times it is not clear when the funds will be received or if they will be received at all.  Receiving a lump sum payment is normally a cause for celebration since you will now receive what is owed to you by the government.  However, the most prevalent fear out there is that because they are about to file for bankruptcy, or have already filed for bankruptcy, they may lose some or all of those funds.  Well, we are here to help you settle those fears.

Social Security benefits are exempted from the bankruptcy estate.  What is a bankruptcy estate?  A bankruptcy estate is created when you file for bankruptcy protection.  The bankruptcy estate essentially includes all assets that you have in your name, whether it is real or personal property, tangible or intangible goods.  We use exemptions to protect those assets.  Since Social Security benefits are exempted from the bankruptcy estate, it means that these benefits are protected against creditor collection, including levies, garnishment, or any other legal process.

If you received your lump sum social security payment before your bankruptcy case is filed, be sure to place those funds in a separate account that is not commingled with deposits from other sources.  This way, there is no argument that the account consists of only the social security payment, and all the funds in the bank account can be protected.  If the lump sum payments are commingled with monies from other sources, it becomes harder to trace the funds.  If you have your paycheck deposited in the bank account along with the lump sum payment, how do you prove that the $1500 you spent on rent came from the lump sum social security payment and not your paycheck?  The harder it is to prove that the funds came from the social security payment, the harder it is to protect.

If you receive your lump sum social security payments after your bankruptcy case is already filed, you need to make sure the payments are listed in Schedule B of your bankruptcy petition.  If it is not, you can file an Amended Schedule B to list the lump sum payment and exempt the asset on Schedule C of your bankruptcy petition.  As previously indicated, remember to place the lump sum payment in an account that is not commingled with other funds to ensure maximum protection.