How do I protect my Social Security disability “lump sum” back payment from creditors if I’m filing Chapter 7 before I receive it?

UPDATED: Apr 4, 2012

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How do I protect my Social Security disability “lump sum” back payment from creditors if I’m filing Chapter 7 before I receive it?

I can’t open a bank account, creditors will take the lump sum even though protected and then I have to fight to get it back. Even my monthly payment will be gone. I know this already. So I took the SSD card option that a third party loads for them. How do i protect that? One attorney said to wait and blow all back payment on anything but unsecured debt, then file Chapter 7 and no one will ask where it went. Another says file now but the lump sum will probably be divided out by court amoungst creditors leaving me with nothing. What do I do? My monthly isn’t enough to live on need lump to help.

Asked on April 4, 2012 under Bankruptcy Law, Colorado


MD, Member, California Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

In bankruptcy, you have to pass a means test to show you just don't have enough to pay off debts (hence a Chapter 7 and not a Chapter 11 or 13). Social security is not counted as disability and will not be garnished. You have to prove your disability payment (lump sum payment) is from Social Security so you should segregate it from the remaining accounts you have. It may mean opening a savings account that only has the lump sum payment but the timing should not impact the fact it is protected by Section 407 of the Bankruptcy Code. Sounds like the individuals you spoke with are not that experienced in bankruptcy law. Go to the state bar and ask for a listing of special certified bankruptcy attorneys and then research with the bar to see if any of those have been disciplined. Narrow it again down by experience level and see if there are any cases out there with similar patterns as yours.

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