Will I Lose My Government Benefits If I Declare Bankruptcy?
Absolutely not. Government benefits, such as Social Security benefits, workers’ compensation benefits, and VA disability benefits, are exempt. Trustees (bankruptcy managers) have some power to intercept some government payments, such as tax refunds and stimulus payments. But this power does not extend to the aforementioned government benefits. Additionally, the Automatic Stay applies to government benefits. For the most part, the Automatic Stay is a forcefield around government benefits.
All that being said, someone must trigger this forcefield and these protections. Not many people have the necessary knowledge, except for a Chicago bankruptcy lawyer. Attorneys identify threats to your government benefits. Then, attorneys use tools like the Automatic Stay and property exemptions to counter these threats. As a result, your family gets the fresh financial start it needs and deserves without compromising the monthly cash, medical benefits, and other benefits it depends on.
Automatic Stay
Government benefits are popular targets for debt buyers. Special garnishment rules apply to these benefits. All creditors who receive notice of the filing must immediately stop such efforts, along with most other adverse actions, such as:
- Foreclosure,
- Repossession,
- Lawsuits, and
- Evictions.
The notice provision is a key, and often overlooked, requirement. Many debts, especially delinquent debts, involve multiple parties. For example, when auto loans enter the repossession phase, a Chicago bankruptcy lawyer must notify the bank that made the original loan, the current loan servicing company, any third-party debt collections, and the repossession company.
Additionally, if the debtor has filed bankruptcy within the past year, the Automatic Stay might only have a limited effect.
Finally, debtors can bypass the Stay if the judge grants special permission. Judges usually do so if the debtor threatens the collateral. Amount of delinquency, no matter how high, never justifies a Stay bypass.
Incidentally, many creditors stop communicating with debtors in bankruptcy. This communication black-out could include the cancellation of any ACH agreements. The debtor must continue making payments.
Property Exemptions
The Automatic Stay prevents creditor adverse actions. Property exemptions prevent trustees from liquidating assets, such as government benefits, to pay debts. In addition to Social Security and other government benefits, property exemptions protect:
- Home equity,
- Motor vehicles,
- Personal property, and
- Retirement accounts.
Some informal exemptions apply as well, such as the best interests of creditors rule.
Assume Jim has a motorcycle the exceptions don’t protect. Before the trustee seizes and liquidates the motorcycle, the trustee must do the math. If the cost of liquidating the asset (paying off the loan, making necessary repairs, storing it, and paying sales or union fees) approaches the asset’s value, the trustee cannot touch it.
Also, bear in mind that the rule applies to the actual sales price, not the asking price or fair market value. A used motorcycle or other asset almost certainly won’t fetch full value.
Reach Out to a Detail-Oriented Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.
