People dealing with major medical challenges may also experience overwhelming financial challenges. Significant, long-lasting medical issues may prevent people from working. Even those who can continue working may experience a reduction in their wages due to fewer shifts or a need to perform light-duty work.
Additionally, medical issues typically generate significant costs. Even those with health insurance may have to pay a deductible or cover coinsurance charges for the treatment that they receive. People with limited or no income may also use credit cards or personal loans to cover basic expenses, such as mortgage payments and monthly utility bills. They may soon find themselves drowning in debt.
People who cannot work at all due to their medical challenges may be eligible for Social Security Disability Insurance (SSDI) benefits. However, those benefits are often far lower than a professional’s prior income.
If a person receiving SSDI benefits files for bankruptcy because they can’t balance their budget, will their pursuit of debt relief affect their eligibility for benefits?
Bankruptcy does not affect SSDI benefits
The good news for people who depend on SSDI benefits because they cannot work is that bankruptcy does not affect their eligibility. The Social Security Administration (SSA) looks at the severity of a medical condition, the duration of the condition and the employment history of the applicant when deciding who is eligible. Pending or prior bankruptcy filings generally do not have any bearing on an applicant’s eligibility for SSDI benefits.
However, SSDI benefits can theoretically play a role in bankruptcy proceedings. The income received through SSDI can potentially influence the outcome of means testing when people pursue Chapter 7 bankruptcy, especially if they file jointly with a spouse who has above-average income. Typically, the benefits available through SSDI fall far short of the median state income, which means that many SSDI recipients could be eligible for Chapter 7 bankruptcy.
They are SSDI benefits are generally not at risk of garnishment to repay creditors. However, they can count as income when evaluating financial circumstances to establish a Chapter 13 bankruptcy repayment plan.
People who need to file for bankruptcy because of financial challenges while receiving SSDI benefits due to medical issues may find it difficult to navigate the bankruptcy process. Retaining legal assistance can help people in challenging circumstances pursue a bankruptcy discharge while retaining their SSDI benefits.