If you've recently suffered an injury or illness that has left you unable to work, you may have already applied for federal disability benefits as a way to provide steady income. While these benefits can be a lifesaver for those without substantial savings or little debt, you likely have a lot of questions about your future finances. What will happen to your existing debt obligations? Will you still be required to pay child support, alimony, or other expenses with disability benefits as your only source of income? Read on to learn more about what happens after you begin receiving Social Security Disability (SSD), as well as which types of funds are protected from creditors.
What will happen to your current debts after you begin receiving Social Security Disability?
The receipt of disability benefits isn't like bankruptcy -- you're still responsible for repaying any debts you incurred before your disability. However, these benefits are different from other types of income when it comes to the way they're treated by judgment creditors. If you're sued for a debt and a judgment is entered against you, your bank accounts into which SSD payments are deposited may be exempt from garnishment or seizure. If you have other assets outside this bank account, a creditor may attempt to go after these assets for repayment instead; but if federal disability benefits make up the majority of your income, it's unlikely you'll be subject to asset garnishment or seizure for unpaid debts.
This protection applies only to the cash in an account into which federal disability benefits are deposited. If you're sued for mortgage foreclosure or for defaulting on an auto loan, your lender may be able to take possession of your home or vehicle without regard to your disability status. It may be in your best interest to streamline and consolidate your existing bank accounts so you can receive the maximum protection for all your funds.
Will you still be required to pay child support or alimony after becoming disabled?
Certain financial obligations may be modified after you begin receiving disability benefits. Both alimony and child support agreements can be revisited if you've experienced a significant change in income -- and going from regular wages to SSD usually involves a reduction of funds. You'll need to be proactive and request a formal modification of your alimony or child support order, as simply failing to pay or reducing the amount could land you in hot water for contempt of court. Once you've requested a modified child support or alimony order, the judge will evaluate your income and other assets and determine a payment amount that is equitable under your state's laws.
If you receive SSI rather than SSD, you may be able to have your child support or alimony completely extinguished. SSI is a subsistence-level payment designed for those who don't have the work history or earnings to qualify for full SSD benefits. Because these benefits aren't usually enough to put your income above the federal poverty level, it's unlikely you'll be ordered to pay child support or alimony when -- on paper -- supporting only yourself is difficult.
However, other previous obligations may continue even after your disability. If you've failed to pay child support in the past and have had your wages garnished by the state to make up the deficiency, your SSD benefits may be vulnerable -- even though they're generally protected from seizure by other creditors for consumer debts. State governments aren't allowed to garnish a large percentage of these benefits, but you'll still find it hard to avoid repaying your delinquent child support. Fortunately for those receiving SSI payments, these benefits are again safe from garnishment for back child support and other unpaid debts.
You will probably want to contact a social security disability attorney to help you navigate these often complex waters.