Those who receive government benefits like Social Security or veterans assistance may be wondering what will happen to these funds if they file for bankruptcy. Although this is a valid concern, there is generally not anything to worry about.
The way bankruptcy works is by comparing your income to the total of your debts in order to determine how much, if any, you will be required to pay creditors. Your income is determined by the amount you earn at your job. However, you will be required to report additional sources of money that you possess like retirement funds, savings accounts, government benefits and the like. Even though this money is reported in your filing, it doesn’t necessarily mean it can be used to satisfy your debts.
A federal law protects certain funds in bankruptcy. Social Security funds are a prime example. For many people, these benefits are their only source of income and are, therefore, exempt from the bankruptcy process. Certain states also exempt retirement funds, military or veteran benefits from the bankruptcy process as well. The differences in which benefits are included in bankruptcy exemption laws vary by state, anyone filing for bankruptcy should consult a bankruptcy attorney to review whether their benefits are protected.