One question that I am asked many times, and it is always a surprise to me, is “Can I file bankruptcy when I am collecting disability?” The answer is “Of course you can.”
Generally speaking, you do not need a reason to file bankruptcy. As long as the debt was not incurred through fraud or some other form of willful misconduct, all that matters is that you are insolvent, which is to say you lack the ability to pay your bills through ordinary means. However, the first group of people that Congress had in mind when it passed the bankruptcy code is people who are in financial distress because of disability or other health reasons. There have been any number of studies which indicate that the main cause of bankruptcy is health issues, either in the form of medical debt or loss of income. As such, wouldn’t it be just plain silly if Congress exempted from eligibility for bankruptcy people who were disabled, and thus unable to work and earn the money to pay their bills? Needless to say, Congress did not do that. People who are disabled are eligible for bankruptcy protection.
I suppose the reason for this question is because if someone has no income other than social security disability income, expects never to work again, and have no assets which a creditor could take away from them, then they are what we call “judgment-proof”. Such a person does have the option of not paying their creditors and just living with the harassment for the rest of their lives, or at least the next many years. However, I have found that, even with the most “judgment-proof” clients that I have had, they have nevertheless made deals to make payments to their creditors just to end the harassment, and are paying out money that they do not have over extended periods of time. Given that an experienced bankruptcy attorney, such as myself, is going to allow very easy payment plans, and will stop the harassment during the course of that payment plan, bankruptcy would still be the preferable course. After all, once the fee is paid, there are no more payments and no more harassment. What is more, if there is other income such as pension or perhaps some limited work income, if there is the possibility of returning to work in the future, or if there are other assets, then you are not so “judgment-proof” after all. That is another reason why Congress would not have exempted the disabled from bankruptcy protection.