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Court ruling shields Social Security payments in bankruptcy

Some common causes of heavy debt that leads to bankruptcy are medical bills, disability and underwater mortgages. These road bumps in life are beyond people's control. Other times, financial mistakes lead to the need for debt relief. In any case, people with crushing debt in Tennessee should be aware of their debt relief options.

For instance, indebted Social Security recipients might be interested in a recent appeals court ruling that effectively protects Social Security payments from creditors. The National Association of Consumer Bankruptcy Attorneys released the news, which was linked to a Chapter 13 bankruptcy filing.

A man and woman filed for Chapter 13 protection in 2010, which meant the couple could establish a payment plan and submit it to the court for approval. In this particular case, the husband is a retired recipient of Social Security benefits, while his wife was a nurse with a $7,000-per-month income.

The couple ran into major debt trouble, and their submitted repayment plan had them paying off $180,000 in unsecured debt with monthly payments of $125 over the course of the first two and a half years. The payments would go up to $500 per month once the couple's vehicles were paid off.

But a representative of the creditors complained that the payments were too small and should include income from Social Security. The Ninth Circuit Court of Appeals disagreed, however, and decided to protect Social Security benefits from creditors' collection efforts.

Again, Chapter 13 involves creating a workable repayment plan, while Chapter 7 bankruptcy involves the liquidation of assets to pay back creditors, and Chapter 11 typically involves the reorganization of personal or business assets. People with heavy debt in Cleveland, Tennessee, should be aware of which type of bankruptcy is right for them.

Source: Money Talks News, "Social Security Benefits Protected In Bankruptcy," Brandon Ballenger, April 2, 2013

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