Social Security Exemption in Bankruptcy -- Is It Protected?

Social Security Is Protected in Bankruptcy

Social Security benefits receive extraordinary protection in bankruptcy:

• Federal protection: Social Security benefits are exempt from the claims of most creditors under 42 U.S.C. Section 407(a). This is a federal exemption that applies in every state regardless of which exemption system you choose.
• Bankruptcy estate: Social Security funds do not become part of the bankruptcy estate. The trustee cannot take them.
• Bank accounts: If your Social Security benefits are deposited into a bank account, the funds remain protected as long as they are identifiable as Social Security. Keep Social Security in a separate account to avoid commingling issues.
• Means test: Social Security income is excluded from the means test calculation (Section 101(10A)). This is a significant benefit for seniors whose primary income is Social Security.