Social Security and Bankruptcy

Social Security and bankruptcy have a straightforward relationship, but there are important things to know about how income affects the process. In many cases, you get to keep all of your benefits.

Social Security and bankruptcy share a fairly straightforward relationship, but making it fluid and streamlined requires some understanding of the monies that are exempt and nonexempt from bankruptcy proceedings.

Listing Social Security in Your Bankruptcy Papers

Every type of individual bankruptcy requires that you list all of the property you own. Once you receive Social Security funds, its status changes from income to property, and you have to list it on your petition. 

In any case, federal law notes that Social Security funds are exempt property, meaning that they get to keep it, regardless of which other property has been deemed yours or the court’s. 

How to Avoid ‘Commingling’

It is absolutely vital to keep records of the Social Security benefits you’ve received each month, and if you’re considering bankruptcy, a separate account for those benefits could help alleviate any concerns of “commingling,” in which benefits end up being seen as combined with other funds (as all into one bank account). 

The Wildcard Exemption

Washington is one of a select list of states that allows the use of a federal wildcard exemption that allows you to hold onto additional property up to $1,325 gun value plus up to $12,575 of any unused portion of the federal homestead exemption.

This offers an additional lifeline for those with lower income when considering the total value of their available assets in addition to monthly Social Security benefits. 

Lastly, you’re not required to include Social Security benefits in the Chapter 7 Bankruptcy Means Test, which would mean a different total income amount and potentially a non-qualification for Chapter 7. In this case, the courts would move you to Chapter 13. 


At Schott Law, we take pride in understanding the ins and outs of how your total income picture will affect your SSI or SSDI claim. It can be overwhelming, but we’re here to help. Call us today at (509) 328-5789 to speak with a qualified Social Security claims attorney and learn how we’ve helped Eastern Washington and Idaho residents earn what they’re entitled to.