Does Receiving a Lump Sum Social Security Payment Affect My Bankruptcy Case?

If you file for bankruptcy, you need to be aware that under 11 USC §541, all your legal and equitable interests belong to the bankruptcy estate. This means that all of your assets (such as household goods like furniture and electronics, vehicles, and real estate) no longer belong to you at the time you file for bankruptcy unless they can be protected. The bankruptcy code usually allows you to keep all of your assets by using exemptions to protect these assets. Please check our blog shortly for an explanation of the available exemptions to protect your assets in California.

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What About Lump Sum Payments from Social Security?

If you receive a lump sum Social Security payment, it may be fully protected, depending on the circumstances. Under C.C.P. Section 703.140(b)(10)(A) and C.C.P. Section 704.080, Social Security benefits are completely exempt. See also 42 USC §407 (a), which states, "The right of any person to any future payment under this subchapter (Old-Age and Survivors Insurance Benefit Payments) shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law."

However, you need to be careful. If you are about to receive a lump sum Social Security payment, in order for the payment to be fully protected, you should deposit the lump sum Social Security payment into a new account that is separate from other accounts and not comingled in your existing bank accounts. This is advisable for tracing purposes. You can easily prove that the funds in the new account only came from the Social Security payment, and not for anything else. If you have your Social Security benefits mixed in with other deposits, it may be harder to prove how much in your account can be fully protected.

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