Living on social security disability payments as an exclusive form of income means you have little margin for financial emergencies. Unexpected expenses and life circumstances can quickly overextend that income, and you can easily become burdened by debt. Payday loans and debt settlement programs can sometimes make matters worse if you are unable to keep up scheduled payments.

Is Chapter 7 bankruptcy a viable option for you? If you declare bankruptcy, can you keep your disability payments? How can you avoid getting snowballed by future expenses?

1. Is bankruptcy a viable option for you?

Receiving an ongoing income from a federal program doesn't mean you aren't eligible for bankruptcy. Bankruptcy laws were established to give every American who ends up in insurmountable debt a second chance, and these laws are protected by the courts. However, whether or not bankruptcy is the best decision for your particular circumstances depends on a variety of factors.

  • How much do you owe in unsecured debt? Credit cards, student loans, medical bills, utility bills and personal loans are all examples of unsecured debt--debt not guaranteed by collateral. This type of debt is dischargeable through a Chapter 7 bankruptcy; the accounts will be cleared, and you will no longer owe these creditors any money. If the bulk of your debt is unsecured, bankruptcy may offer the relief you need for a fresh start.

  • Is keeping your house and/or car important to you? Secured debt, such as a house or automobile, is not dischargeable in Chapter 7 bankruptcy unless you surrender it. An exception can be made if the amount of money your creditor would make from the sale of your property is not worth seizing it. If losing your home would create a whole new set of life problems for you, bankruptcy may not be the right decision.

  • Are you able to go without a safety net? After bankruptcy, you will not only have a limited income but also won't be able to apply for any new credit for six months to one year. Further, depending on where you live, you will not be allowed to declare bankruptcy again for a certain number of years. You will need to factor in a savings plan so that you can meet your financial obligations responsibly.

The best thing to do if you need legal counsel about whether or not bankruptcy is right for you is to meet with a social security disability attorney. The consultation is free.

2. If you declare bankruptcy, can you keep your disability payments?

You may be holding off on the relief bankruptcy can provide because you are afraid you will lose your disability benefits. In most cases, your income is protected during bankruptcy proceedings; after all, it is what affords you the ability to provide shelter and basic needs for you and your family. In limited Chapter 7 situations, past lump-sum disability payments not disbursed through the Social Security Act may be subject to forfeiture.

3. If you declare bankruptcy, how can you avoid being snowballed by future expenses?

Because you will not be able to declare bankruptcy again for a number of years, it is imperative that if you choose this option you take steps to guard against future financial problems. Some suggestions for doing this include

  • establishing a tight budget (a credit counseling agency can help you do this)

  • setting up an automatic transfer so that part of your monthly check goes into a savings account

  • rebuilding your credit with prepaid credit cards

  • maintaining one (and only one!) major credit card, for emergencies only

Being on social security disability doesn't exempt you from getting into financial trouble. It doesn't exempt you from taking advantage of bankruptcy protection, either. Talk to an attorney today and click here for more information.