Social Security Income has No Impact on Phoenix Bankruptcy
At the core, the assessing your ability to repay debt is everything in bankruptcy. Chapter 7 requires this assessment to determine whether you qualify at all. Chapter 13 requires it for determining how much, if anything, you will have to repay to your unsecured creditors. Here’s the nice thing if all or part of your income is social security or Supplemental Security: They don’t count in bankruptcy.
There are two real tests in Bankruptcy that impact your ability to qualify for Chapter 7 or impact the amount of your plan payment.
First, the Means Test( Official Form 122A in Chapter 7 and Official Form 122C in Chapter 13) in which multiple forms are filled out, completing a sort of equation deducting a mixture of real and predetermined allowed expenses based on average costs in your county of residence from your gross income during a six month period prior to your filing date.
Second, the Best Efforts Test which was, in fact, the only test prior to the law changes in 2005. This is the more reality-based test which generally asks one question: If we subtracted all your allowable monthly expenses from your net income going forward, would there be any money at all left over to dole out to your unsecured creditors. If there is any money left over, Chapter 7 might not be appropriate. In Chapter 13, this test is often used to determine the amount of your plan payment going forward.
The great thing about Social Security Income and Supplemental Security Income is that it doesn’t come into either test in any meaningful way. It is listed but it doesn’t impact your eligibility for Chapter 7 or the amount of your payment in Chapter 13.
The reality is that you should expect to qualify for Chapter 7 bankruptcy if you are living on Social Security alone and, by the same token, you should expect an extremely low Chapter 13 Plan payment if all you have to count on is Social Security Income.
Really where Social Security’s invisibility on both the Means Test and Best Efforts Test produces unexpected results is where there is another source of income and Social Security. Couples filing bankruptcy in Arizona often find themselves qualifying for Chapter 7 or having lower Chapter 13 Plan payment than they expected because only part of their income is counted.
Chapter 13 Plans are obviously much easier to complete when the Arizona Bankruptcy Court skips over $1800 of your income and effectively tells you that you are going to get a discharge in a shorter period of time or hold on to more money every month.
If you have any questions about your eligibility for Chapter 7 bankruptcy or the extent of your probable Chapter 13 Plan payment, or if you have any questions at all about how your Social Security check will be taken account in your bankruptcy filing, call the offices of Phoenix Fresh Start Bankruptcy Attorneys. We would be happy to discuss all your options under the bankruptcy code and help you figure out the best possible route for you to obtain a fresh start.