It is often unnecessary for veterans, the elderly, and disabled to file for bankruptcy. Federal laws exempt social security disability and retirement benefits, as well as veteran’s benefits, from creditors. In both New Hampshire and Massachusetts, and in most states, there is broad protection for private pension income, unemployment benefits, public assistance, and worker’s compensation benefits. Even if a veteran or person collecting social security benefits works, a high percentage of that earned income is also protected from the reach of creditors.
Are there situations where I recommend that persons on fixed income file for bankruptcy? Usually, I will recommend bankruptcy in this situation if the person is receiving numerous calls and letters from creditors/collection agencies, and this is causing psychological stress. Seeing the sheriff at the door, and having to go to Court to disclose their financial information publicly can be a motivation to file, just to end the stress.There are also situations where a person on a fixed income is young enough where their credit score matters (e.g. for financing a vehicle), and they want to rebuild their credit. In those situations, bankruptcy can help to “clear the slate”, and allow peace of mind, as well as a chance to rebuild credit. Even though a Chapter 7 bankruptcy stays on your credit history for 10 years, with the current method of “credit scoring”, most people come out of a Chapter 7 with a credit score that is higher than their pre-filing score; although the reason for this is not clear (the algorithms for credit scoring are a closely protected trade secret), after a Chapter 7 discharge, the debt-to-income ratio decreases, which appears to account for the increased score.