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Seniors filing for Chapter 13 can keep Social Security income

Massachusetts retirees who are seeking debt relief may be interested to hear about a recent court case in another part of the country. In this case, a federal appellate court held that those who are receiving social security retirement benefits do not have to apply that income to a Chapter 13 repayment plan.

Typically, a debtor filing Chapter 13 bankruptcy will keep all of his or her property; however, he or she will account for all of his or her income. The person will then apply that income, less necessary expenses, to paying off all or a portion of his or her outstanding debts. The repayment plan can last up to five years. While the goal is to break down overwhelming debt in to manageable payments under the supervision of the court, often the monthly payment can still impose quite a hardship on a debtor. It is therefore very important that income not be overestimated, and that expenses are accounted-for properly.

In this case, some argued that the retired husband of a couple who filed Chapter 13 should have to count his monthly social security benefit toward the couple's income, thereby increasing their monthly payment. The Court of Appeals disagreed, recognizing that when Congress passed this country's bankruptcy laws, it intended to protect social security retirement benefits from the bankruptcy process. According to one organization that advocates for consumer debtors, the ruling is simply reaffirmation of a longstanding precedent and came as little surprise.

Especially since the protection of social security income is involved, Chapter 13 may be a good option for Massachusetts residents entering their golden years while carrying a burden of debt.

Source: Money Talks News, "Social Security benefits protected in bankruptcy," Brandon Ballenger, April 2, 2013

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