Do you know whether or not your social security benefits are protected when you file for bankruptcy? It’s an interesting question because the answer, while simple in principle, is not always simple in practice. To begin with, any social security benefit you receive is totally protected as it enters your bank account. From there, the waters become murky.

If you have a bank account that has several hundred dollars in it that you draw from, and occasionally deposit into, then it is difficult for the bankruptcy trustee to determine which money in that account is related to your social security benefit, and which money is not. The amount that is not related could be subject to seizure to help pay your debts.

This situation is not as unusual as it seems, especially for those in retirement. The smartest move is to have a separate bank account that is dedicated to social security benefits only. The whole balance can then be seen to be solely from your social security entitlement. Of course, that means that any money in any other bank accounts will be examined for possible seizure.

For most people, this is not a problem. They probably only have small amounts and the trustee¬† won’t be too interested in those amounts. So, while your social security benefits are legally protected by the bankruptcy legislation, once it hits your account and gets lost in amongst other funds, doubt could arise. If you receive social security benefits, and bankruptcy is being considered,¬†consider a dedicated account for those benefits. This will ensure they remain protected.