Social security recipients do not have to count their social security income in bankruptcy. This income is not counted in the means test or the budget in bankruptcy. Deposits of these benefits are generally protected in bankruptcy if using the state exemptions.

Social security benefits are not counted as “income” for purposes of the means test. Because of this, you are more likely to be eligible for a Chapter 7 bankruptcy. Also, social security income does not have to be included in a Chapter 13 bankruptcy budget, which may lower the required Chapter 13 bankruptcy plan payment. In other words, if you receive these benefits, you get special treatment in bankruptcy.

Additionally, social security benefits that have been segregated (kept separate from all other income) most likely can be exempted under federal law if using the Texas state exemptions. This is especially important if you have a large amount of equity in your home or own your home free and clear from any mortgage liens. If you are a Texas resident and have more than $21,625 ($43,250 for a joint filing), you may need to protect your assets using the Texas exemptions. Unlike the federal exemptions and exemptions from certain other states, Texas does not have an exemption for cash or a wildcard exemption (where you can exempt any type of property). If you have kept your benefits in a separate account, you may be able to use 42 U.S.C. 407 to protect segregated social security benefits.

Whether you are considering bankruptcy or not, you should have a special account where your benefits are deposited. Do not put any other funds in that account other than social security.


These benefits can be garnished or seized for limited debt types, such as child support, federal debts, including taxes and student loans. There are limits on the type of debt and the amount that can be seized. These benefits are usually protected from most other creditors. Most people find it easiest to have two bank accounts, savings and checking. The social security benefits go into the savings and other income into the checking. They then transfer out of the savings into the checking as needed, but never the other way.