Disability & Bankruptcy?

Question

After being medically discharged from the Marines almost a year ago I didn't have the money to pay my old debts. I had been saving up for about 3 months in order to file bankruptcy but now that I had the money I needed, my disability claim has been completed and I was given 100% disability. I am getting a back payment of a pretty good lump sum but it is still not enough to clear my debts. Plus, yesterday my car was repossessed. Now I have no car and need to file. Will having that additional money affect my chances to file? It is all disability payments. I need to buy a car now but I am afraid it will be taken as an asset. Should I just wait to cash the check? Can someone give me some advice? Thank you.

Answer 1

You may be able to file (you could have filed under a fee waiver if you found a lawyer willing to do it for free), since the benefits are exempt (11 USC § 522(d)(10)(A) or (10)(C) under the federal exemptions). If your state has opted out of the federal exemptions, you will have to look to the state statutes. The only other question is whether you have enough monthly income left over to be required to file a c. 13 instead of a chapter 7. You really need to consult an experienced bankruptcy lawyer.

Don't worry about depositing the check or spending the money. Do not pay any creditors until you check with the lawyer, since you may create a preference and the trustee may be able to go after that money, which is no longer exempt.

If you buy an expensive vehicle for cash, you may not be able to exempt the full value of the equity of the vehicle. Once you know how much you can exempt in your state, make sure the equity in the vehicle does not exceed that amount. If you do not own a house, you may be able to use some of the homestead exemption toward its value, unless you have other assets you need to protect.

Answer 2

no. typically disability payments are not considered income in the traditional sense, in your case i would file bankruptcy prior to opening or depositing the lump sum payment, any and all assets can be up for grabs in a bankruptcy. call a lawyer and seek professional advise before doing anything, your particular situation can have different effects that i can not possibly foresee.

Answer 3

bankruptcy law allows the debtor to claim some of his property as exempt from his bankruptcy estate, which means his creditors will be unable to obtain the exempt property.  the bankruptcy code allows the debtor to select from essentially two lists of exemptions--those afforded by the federal scheme, or those exemptions provided by the law of the state where the bankrupt lives and presumably files his bankruptcy.  you should talk with your lawyer to see which of these exemption lists would protect most of the property you want to preserve.  one car is usually allowed as an exemption..talk to the lawyer. if you have car payments, you would still need to make them.  also, bankruptcy courts look with suspicion at all moneys spent within 90 days of filing bankruptcy so you want to talk with your lawyer about the decision to purchase a car. you do not state whether you want to file a chapter 7 bankruptcy, which would discharge all unsecured debt, or a chapter 13, in which you would make monthly payments to a bankruptcy trustee for as much as 5 years to pay at least a portion of your debt.  recent changes in the bankruptcy law (republican congress) have put income caps on who can file a chapter 7 bankruptcy.  if the disability is your only income, i doubt it would preclude a chapter 7, but again you need to talk with your lawyer.  you could still file a chapter 13 with the monthly disability payment you receive from the  military. waiting to cash the check will not help and bankruptcy fraud is a crime.  i am sorry to hear your military service has caused you to become disabled and contributed to these financial difficulties.  i hope you are able to successfully resolve these problems and have a good future.