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Disability Benefits

by Adam Mack

If you have found yourself in the situation where you have to apply for disability benefits, then you know first hand how difficult it is to navigate through the arduous application process.  In many cases, the same circumstances that result in a person having to file for disability has also caused them to step away from their employment, thus creating havoc of the person’s finances.  Consequently, there is a strong correlation between those who file bankruptcy and those who are filing for disability benefits.  Because of this correlation, we are often asked if disability benefits are exempt in bankruptcy.  The quick answer is yes, but it is not always that simple.  When filing bankruptcy, you are required to cite the statute you are relying on to claim a particular property as exempt.  Most of the Kansas bankruptcy exemptions are in KSA Chapter 60, Article 23.   However, there are other exemptions scattered throughout the Kansas statutes.

Then, just to make things a little more convoluted, KSA 60-2312(b) incorporates exemptions that are not listed anywhere in the Kansas statutes, and only appear in the United States Code.  One of these incorporated exemptions is the disability exemption which is found at 11 U.S.C. 522(d)(10)(C).  This exemption allows a person to exempt his or her disability benefits and there is no cap to what can be exempted.  However, there is an important principle to keep in mind, and that is that protected assets (i.e. disability benefits) can lose their protection when they are co-mingled with assets that have no special legal protection from collection (i.e. wages from a job).

This means that if you have disability income and you deposit your money into a checking account that is shared with your spouse who is employed and earning wages, then some would argue that, because money is fungible, the dollar amount in your checking account that is “exempt money” is indistinguishable from the “non-exempt money”.

It is sort of like having two glasses of water.  One that is totally clear and free of any contaminants and the other has blue dye in it.  Once you pour the water from both glasses into a single container, then you can no longer separate the pure water from the water with the blue contaminant.  As such, a trustee might argue that, while some money was protected by the disability exemption, the money has now been co-mingled in such a way as to eliminate any legal protection it may have once had.

The bottom line is that your disability check is your life line and needs to be protected.  Bankruptcy is supposed to give you a fresh start, but if you simply jump into a bankruptcy filing without proper legal advice, you may be required to surrender a substantial amount of money that could otherwise be protected.  There is a reason that some attorneys have built a career on filing bankruptcy.  It is because it is complicated and not something you should try to do on your own.  Many Kansas bankruptcy lawyers provide free consultations.  You should seek out their advice before taking any legal action on your own.