Are Social Security and VA Benefits Counted as Income in Bankruptcy?

Introduction

One of the most common concerns for people considering bankruptcy is:

“Will my Social Security or Veterans Affairs (VA) benefits be taken away or counted as income?”

The good news is that Social Security benefits and most VA benefits are protected under federal law. This means they generally do not count as income for the means test and are exempt from being taken by creditors in bankruptcy.

The Means Test and Income Calculation

The bankruptcy means test determines if you qualify for Chapter 7 or how much you must pay in Chapter 13.

• Social Security benefits are excluded from means test income.

• VA disability benefits are also protected, though military retirement pay is usually included.

This means that if your only or primary source of income is Social Security or VA disability, you may qualify for Chapter 7 more easily.

Protection of Benefits from Creditors

Federal law provides strong protections:

• 42 U.S.C. § 407: Social Security benefits cannot be assigned, garnished, or seized by creditors.

• 38 U.S.C. § 5301: VA disability benefits are protected from creditors, liens, and levies.

These protections remain even after you deposit the money into a bank account, though it’s best to keep those funds separate from other income to avoid confusion.

What About Chapter 13?

In Chapter 13 bankruptcy, your repayment plan is based on disposable income.

• Social Security benefits are not required to be included in your repayment plan.

• VA disability benefits are also protected, though some trustees may ask for disclosure.

This allows disabled veterans, retirees, and those living on Social Security to keep their benefits for living expenses while still restructuring their debts.

Important Notes

• Military retirement pay (not disability) is considered income.

• Mixed accounts (benefits mixed with wages or other deposits) can create disputes — it’s best to keep a dedicated account for benefits.

• Always fully disclose benefits in your bankruptcy paperwork — hiding them can lead to complications.

Conclusion

If you rely on Social Security or VA disability benefits, bankruptcy law gives you strong protections. These benefits generally don’t count as income for qualifying purposes and are shielded from creditors, helping you keep financial stability while getting debt relief.

💡 Next Step: If you’re considering bankruptcy and receive benefits, consult with Middleton Bankruptcy to ensure your rights and income are fully protected.