Bankruptcy while married with a disabled spouse

Bankruptcy While Married with a Disabled Spouse

Filing for bankruptcy can be a complicated process, and for those who are married and caring for a disabled spouse, it can be confusing. Understanding not only what benefits are exempt from the means test but also how the trustee will view and treat the case is imperative. Most debtors seek eligibility for Chapter 7 bankruptcy, which allows them to discharge all of their unsecured debts.

Social Security Disability Insurance (SSDI)

All social security benefits are protected from garnishment or seizure by creditors. Not only will your spouse's benefits be protected, but they will not be considered income during the means test calculation. Congress created these laws to ensure those relying on these benefits for their daily living expenses have adequate funds to care for themselves or be taken care of. Section 207 of the Social Security Act (42 U.S.C. § 407) protects all social security benefits, and this is enforced by 11 U.S.C. § 522(d)(10)(A), which protects SSDI explicitly.

Disability Benefits

Other benefits protected are any local assistance benefits, any other type of disability, illness, or unemployment benefit, and any health aids prescribed to the debtor or their dependents. Disability benefits held in retirement accounts such as 401(k), 403(b), traditional I.R.A., and Roth I.R.A. are also exempt, ensuring money saved for requirements and financial planning for those with disabilities is protected from claims by creditors.

Disabled Veterans Benefits

Disabled veterans benefits from the Department of Veterans Affairs are protected from creditors due to the 2019 Haven Act. The Haven Act allows recipients of most types of disability benefits to omit these sources of income from their Current Monthly Income (CMI). A debtor calculates their CMI to determine if they can pass the means test by comparing their income to the median income in California for a household of the same size. Discluding veteran disability pay allows more veterans to be eligible for Chapter 7.

Disabled Dependent & the Means Test

When calculating the means test, being married with a disabled spouse can have a significant impact on the debtor's ability to qualify for Chapter 7 bankruptcy. Including a disabled dependent will increase the number of members in a household and make the I.R.S. guidelines for allowable expenses are a lot more flexible. The I.R.S. can't impose exact spending allowances when someone is living with a disability, as the cost can vary dramatically depending on the condition. Deciding whether you can file for Chapter 7 will depend on your expenses and whether you have disposable income after your expenses. However, with a disabled spouse, those expenses will tend to be much higher than an average household's expenses. Our firm has filed thousands of cases, and I have negotiated with the trustees on reasonable, allowable expenses when there is a disabled member of the family. I have found that as long as we can justify the expenses to the trustee, they will accept anything within reason to care for your disabled family member. By keeping detailed records of your last six months of expenses, I can show the trustee what your real costs are. They will not use the I.R.S. limits but instead will accept your real costs as long as they are verifiable.

Medical Debt

Chapter 7 bankruptcy can discharge medical debt, including healthcare costs from doctors, hospitals, clinics, and healthcare providers. Because the debt has no collateral backing it, it will be considered the same as any unsecured debt. A successful bankruptcy can eliminate medical debt. There is no limit on how much medical debt you can have discharged. However, once your bankruptcy is complete and the debt is discharged, future debt will not be part of the bankruptcy, so careful planning should be considered when considering bankruptcy especially when you are married with a disabled spouse.

If you are married and your spouse is disabled and you are considering bankruptcy, please get in touch with me. I have vast experience handling cases where we have to justify extra expenses to the trustee due to a disabled or ill family member. I will be able to give you a clear path to discharge all of your unsecured debt in Chapter 7 or find a workable payment plan for you and your family in Chapter 13.

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