How Your SSDI Benefits May be Affected by Past Due Student Loans

In the past several years, there seems to be a growing trend, and one that is less than ideal. More and more recipients of Social Security are also carrying significant federal student loan debt. This obviously presents a problem since both sources of money flow from the federal government. With more student loan debt, the federal government will continue to fall deeper into debt. How exactly will your Social Security Disability Income (SSDI) benefits be influenced by past student loans?

According to a report released by the Government Accountability Office, the number of people whose Social Security benefits have been offset rose from 31,000 in 2002 to 155,000 in 2013. That’s almost a five-fold increase! The report also tells us that only about 36,000 of the 155,000 individuals are age 65 and older. We can conclude that there are many individuals whose SSDI is being affected by their student loan debt. Did you know it’s possible that your student loan debt could be forgiven? Before making any rash decisions, it’s necessary to check out how your taxes will be influenced if you were to receive a TPD discharge.

In order for an individual to have any of their loans forgiven by the Social Security Administration (SSA), the individual needs to qualify for Total and Permanent Disability (TPD) discharge. Monitored by Federal Student Aid, which is a facet of the U.S. Department of Education, TPD discharge equates to an individual not having to pay back the funds that they owe for their education.

Which loans fall under TPD discharge?

·        William D. Ford Federal Direct Loan Program loans

·        Federal Family Education Loan (FFEL) Program loans

·        Federal Perkins loans

·        Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligations

Who qualifies for TPD discharge?

Unfortunately, TPD requirements are more difficult to meet than the eligibility requisites for Social Security. Just because you have been approved for SSDI benefits does not mean that you will be eligible for TPD discharge. Here are the rules, which were updated in 2010.

·        You must not be able to complete any “substantial gainful activity” that could provide an income. This activity is includes physical and intellectual activities. The inability must be due to a medically determinable physical or mental health impairment that has lasted for at least 60 months, is anticipated to last for 60 months, is expected to lead to death, or is correlated with 100% military service disability.

·        Social Security does not guarantee disability benefits for military service disability.

If an individual receives the Social Security disability award within the five to seven year review date, they will be part of a group known as “Medical Improvement Not Expected (MINE),” which should qualify them for a federal loan discharge.

To complete a TPD Discharge Application, you must have your medical doctor verify that you are disabled. Once your physician has filled out sections regarding your diagnosis, the severity of the problem, and any limitations experienced as a result, you can submit the application to your loan servicer. It’s required that you submit an application for each individual loan holder.

Please don’t hesitate to ask us if you need help with your TPD application or if you aren’t sure if you’ll qualify.

Bankruptcy and SSDI: Will I Lose My Disability Income?

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Americans who have worked long enough and paid Social Security taxes have a safety net in place if they happen to become disabled and can no longer work. Having paid into the system entitles all (previously or currently) employed workers to apply for disability benefits if the need arises. If you are someone who is currently receiving Social Security Disability Insurance payments, you’ve probably had mixed emotions about your situation.

Naturally, Social Security payments can be quite a relief to anyone afflicted with a chronic, life-altering illness. However, no longer able to perform duties that previously allowed you to work a paying job, it’s easy to become worried about whether you’ll be able to pay your bills. Although Social Security Disability Insurance payments are helpful, most people receive a fraction of what they were previously earning. If you are approved to receive disability insurance payments, the amount you receive is not based on how severe your disability is or how much money you were making when you became disabled. The Social Security Administration averages how much income you paid Social Security taxes on in the past – over many years. They then apply a formula to this average, using percentages called ‘bend points.’ Ultimately, your payments will be a percentage of what you earned throughout your working years.

Most Social Security Disability Insurance payments range from $300 – $2,200/month. In 2014, the maximum disability benefit amount was $2,642/month.

This leaves many people receiving significantly less ‘income’ than they were while working, and can eventually lead to a financial crisis. Previously, paying all of your monthly bills may have been a walk in the park, but if your income was suddenly cut in half or lower, you may quickly start struggling. You may find that it’s barely possible to pay your utility bills, mortgage, minimum credit card payments, and more.

We’ve met with several disabled clients who found themselves in similar situations – not wanting to lose their homes or the ability to properly support their families, they were up in arms about what to do next. Afraid that they would lose their back payments or ongoing Social Security Disability benefits, they were hesitant to file for bankruptcy.

If I File for Bankruptcy, Will I Lose My Disability Income?

You’ll be happy to learn that SSDI payments (including lump sums or back payments) are always exempt in Chapter 7  and Chapter 13 Bankruptcy proceedings.¹ If you are receiving SSI (Supplemental Security Income) payments, they are also exempt due to the strict rules about how that money can be used by recipients. In both cases, lump sum payments may have to be tracked in order to prove that they were indeed Social Security benefit payments.

If you receive private, state or other disability payments (NOT from the Social Security Administration), a certain amount of those payments will also likely be protected in a bankruptcy case.

Filing for bankruptcy while receiving disability payments IS POSSIBLE. You will not lose your only source of income. To learn more, please schedule a FREE consultation with my office today (732) 695-3303. We can help you wipe out many of your debts so that living on a fixed income is possible.

 

¹Nolo.com

Image credit: Simon Cunningham