Can I declare bankruptcy if my only income is Social Security?

Qualifying for Chapter 7 Bankruptcy With Social Security Income

Qualifying for Chapter 7 is a snap for people whose income comes from Social Security benefits. Social Security income isn't included in the Chapter 7 means test, which determines whether someone's income is low enough to qualify to erase or "discharge" debt. Without income to declare, the filer is automatically eligible.

However, even with the qualification advantage, those with only Social Security income rarely file. It's unnecessary because the property protections in Chapter 7 usually don't offer more benefits than those already available for Social Security income and other property. Learn more about keeping property in Chapter 7.

Protecting Social Security Income and Property in Chapter 7 Bankruptcy

Social Security income has special protections that apply in and out of bankruptcy. As long as you can prove funds are Social Security income, a creditor can't force a bank to withdraw money to pay a debt. Filing for Chapter 7 bankruptcy won't increase the existing Social Security income protection.

Of course, your creditors might be able to seize other property, but if you don't have much, it likely won't be an issue, and the creditor will be limited to calling and mailing letters asking for payment. Most states prohibit creditors from taking property you need to work and live, and what you can protect is often the same regardless of whether you file for bankruptcy.

Filing for Chapter 7 would only make sense if you could protect more property by filing for Chapter 7 than you'd lose otherwise. If you couldn't keep more, you'd do better to sell the property and pay the debt outside of bankruptcy. You'd likely get a higher price and avoid paying the Chapter 7 trustee a fee to liquidate the property on your behalf.

Qualifying for Chapter 13 Bankruptcy With Social Security Income

In Chapter 13 bankruptcy, filers repay creditors at least some of what they owe through a three- to five-year Chapter 13 plan, and you can use Social Security income to fund it. However, because Chapter 13 plan payments are often substantial, Social Security funds alone might not be enough to cover the required payment.

How to Stop Creditor Contact

If you don't need to file for bankruptcy but are receiving harassing collection calls, you might consider filing for no other reason than to stop annoying creditors. It's not necessary. You can handle annoying calls and letters by asking the creditor to cease contact—but be sure to do it in writing.