Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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Non-Social Security Disability Benefits + questions

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  • Non-Social Security Disability Benefits + questions

    i'm off work, disabled, and receiving long term disability. For the first part of the year I had the company short term disability which was salary replacement. I paid for the 10% extra to have 60% of salary as long term disability. I'm waiting for the W-2 and 1099s to figure out what was wage income vs disability benefit. It should all be disability benefit that I receive monthly now and for last six months. So, short story long, is my monthly LTD considered income for a chapter 7 means test and statement of income?

    In Arizona, disability benefits are specifically exempted. Does this mean I can create an emergency fund in cash that is the benefit?

    Should I stop direct deposit to a bank that has no debts owed, but an external transfer set up to a bank with a debt? What about solely bill pay?

    While I spent more on Christmas than I should, I should be able to pay those down to what I owed in November by the time I'm ready to file, which'll be after the tax refund is spent on education-either trying to get back to my job or a new one, if I can ever recover enough to be allowed to work.

    Also, if filing an action on the federal student loans, can the rest of the bankruptcy be discharged while the adversarial proceedings continue? I've read online that some folks have been fighting the student loan part for decades!

    thanks for reading and Merry Christmas.

  • #2
    I'm relatively new here so I would ask for confirmation, but my understanding is that all disability benefits except for social security are included in the means test. I am in a similar situation where I am receiving disability from a private disability plan and the attorneys I consulted said that the income would have to be included...


    • #3
      The short and long of the story is that 11 USC 101, where the definitions are made, declares that all income, regardless of source or taxability, is part of the definition of "current monthly income." The only exceptions to the CMI are payments made to the debtor under the Social Security program. LTD (long term disability) paid by an insurer, is not a Social Security benefit and therefor it is income for purposes of "means testing" in bankruptcy.

      Exemption is completely separate from the distinction as to whether income is not part of the CMI calculation. An exemption just protects it from creditors. Most disability income is in fact exempt under either State and Federal bankruptcy and non-bankruptcy laws. That exemption does not preclude it from being counted in the definition of "current monthly income" under the bankruptcy code. Hopefully, the LTD money has not been commingled with other money (which can make it hard to distinguish is protected and what is not protected).

      As for moving money to a different bank, this is generally recommended especially when it is a credit union (CU). CUs are notorious for cross-collateralization of deposit accounts and debt! I would not keep deposit accounts (demand/timed) in the same bank that I owe debt. (Although I did this for a CU because they look at the entire relationship when lending. But, if I were to file for bankruptcy I may move the cash somewhere else.)

      Adversarial proceedings (APs), unless it is one from the United States Trustee (UST) specifically to have your entire case dismissed, do not affect the discharge of any other debt. Bankruptcy APs do not go on for decades. I think the mention that students have fought over student loans for decades is anecdotal (at best). The entire reason why people bring things into the bankruptcy court's jurisdiction is that it's relatively fast compared to non-bankruptcy courts.
      Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
      Status: (Auto) Discharged and Closed! 5/10
      Visit My BKForum Blog: justbroke's Blog

      I am not an attorney. Any advice provided is not legal advice.


      • #4
        I have several references for the student loan AP taking on decades, especially when the loan providers want to argue. In re Fern is one, as I compile my proceeding I'll list the others.

        thank you so much for the information. Finding out how deep my hole goes is allowing me to stop digging deeper and either digging a staircase out, or an elevator shaft -those have ladders! For example, the IRS has not filed the trust fund penalty and they may be beyond their statue of limitations. And, I'm probably in a good position to do an offer in compromise telling the whole story, not just the numvers on the page. Now to figure out how to do that.


        • #5
          In Re Fern, 553 B.R. 362 (2016) is from a 2014 bankruptcy case and the adversary proceeding is also from 2014. The initial AP was decided in June 2016. There was an appeal, also from the 2016 case (553 B.R. 362 (2016)) which was upheld by the 8th Circuit BAP January 2017, 563 B.R. 1 (2017). What am I missing with "decades"??? These cases are usually completed in about a year. The DOE didn't like this particular case, appealed and the original decision was upheld. (I'll speculate that the DOE was resting on that this debtor is relatively young in age and has many more working years. The judges seem to opine that the oppression from the credit impacts and constant collection, were not tenable for this mother of three and that represented an undue hardship itself.) That appeal took less than 6 months. (I think the total time was just over 2 years including the appeal.)

          (Background: Fern took out student loans 2002-2005 and again in 2007+. Fern filed for bankruptcy in 2016 and asserted that the student loan debt was an undue hardship with no chance of being repaid. The Department of Education (DOE) pushed back and lost both the original trial and the appeal to the Bankruptcy Appellate Panel (BAP) for the 8th Circuit.)

          I'll add that it's the job of the US Attorney's office, as counsel for the DOE, to defend student loan debt nondischargeability where it should, or has the likelihood to, be paid back. Loan "providers" don't get into these cases because they are expensive (APs are expensive as it's real litigation). The DOE has unlimited resources from the US Attorney's office so they can weather any storm a debtor can generally through at them. It's a bit of Samson and Goliath (student versus the DOE, respectively).

          I do believe that some student debtors should have their debt forgiven. I don't personally like that the DOE has unlimited resources to defend the nondischargeability of loans as this makes it a little more difficult to pursue. In the end, the 8th circuit seems to have struck a balance under their guidance with their totality of circumstances test. Others have not done as well as Fern in other districts.
          Last edited by justbroke; 01-08-2018, 12:04 PM.
          Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
          Status: (Auto) Discharged and Closed! 5/10
          Visit My BKForum Blog: justbroke's Blog

          I am not an attorney. Any advice provided is not legal advice.


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