Bankruptcy

Disability Insurance Proceeds In Chapter 7 Bankruptcy

By Jonathan Alper

A prospective Chapter 7 bankruptcy debtor receives significant monthly disability insurance proceeds as a result of a disabling medical condition. He wanted to know how his disability checks would affect a bankruptcy. There are two issues with disability income. The first question is whether disability income is counted in the means test and second is whether disability money held in a bank account is part of the bankruptcy estate controlled by the trustee.

Social security disability does not count as income for purposes of Chapter 7 bankruptcy eligibility. Social security disability does not count when determining if the debtor is above or below median income, and if above median income, it is not income in the means test. Disability income under a private disability insurance contract is counted as debtor income. Medical expenses related to this debtor?s medical condition that caused the disability would be deductible in the means test to offset the insurance income.

All disability proceeds, social security or private insurance, is exempt under Florida statutes. Florida courts usually hold that disability income, as well as pension and retirement income, retains exempt status after it is deposited in a financial account as long as it is traceable. Disability income retained in this debtor?s bank account could be claimed as exempt.

Full post as published by Florida Bankruptcy Law on November 21, 2010 (boomark / email).