Social Security and Massachusetts Bankruptcy
The good news is that the Social Security Administration has announced that next year, for the first time since 2009, there will be a cost of living adjustment in Social Security benefits in the amount of 3.6%. As a Massachusetts bankruptcy lawyer, I often get asked: can the Massachusetts Bankruptcy Trustee take my Social Security Check? Does Social Security get factored into the Means Test in Massachusetts?
First, let’s review why there is a 3.6% increase coming. 55 million people will get the Cost of Living Adjustment (COLA) in their Social Security check starting January 2012. Approximately 8 million Supplemental Security Income (SSI) beneficiaries will get the same increase in benefits. Since 1972, this there have been COLA adjustments, based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers from last year’s third quarter to this year’s third quarter. It is the US Bureau of Labor Statistics, in the Department of Labor, that determines the CPI-W. For the last two years, as many of our Massachusetts consumer clients know, there was no increase in CPI-W, and therefore, no increase in the cost of living adjustment in their monthly Social Security checks.
It is also important to note that in 2012 there will be an increase in the wages that can be taxed for Social Security: from a maximum of $106,800 to $110,100. This is based on the average wages increase. Everyone is taxed 15.3%, for Social Security and Medicare, up to the maximum. If you are employed, your employer pays half, or 7.65%, and, of course, that is factored into salaries. If you self-employed, you pay the full 15.3%. Except, of course with the government and taxes there is an exception, and in 2011 the exception is good: this was reduced by 2% for 2011!
The SSA estimates that the average monthly social security benefit starting January, 2012 will be as follows: $1,229 for all workers; $1,994, for a retired couple; $2,543 for a widowed mother of two; $1,184 for a senior who is widowed; $1,892 for a disabled worker or spouse with children; $1,111 for a disabled worker.
But, again, how would this affect someone asking for a fresh start in Massachusetts filing for bankruptcy? The easy answer is that no, Social Security income is not calculated as a part of the Means Test. The Means Test, a part of the 2005 changes in the US Bankruptcy Laws, requires that all people filing for Chapter 7 personal bankruptcy complete a “test”, which is a form attached to the bankruptcy Petition. The test evaluates the income of filers, and if you are over the maximum incomes for your category, you may have to file under a different Bankruptcy Chapter such as Chapter 13. Thus, if you have a certain amount of part time income, plus Social Security income, you will be able to exclude the Social Security income from the test.
The Means Test really has two parts. First, if your income for the six months prior to filing is below the Massachusetts’ median family income, for a “family” your size, you can simply “pass” the test. Thus, if you have income plus Social Security income, the Social Security income is excluded, which helps our many of our Massachusetts bankruptcy clients. The second part of the test only need be taken if your income exceeds the Massachusetts median family income. Many of our Boston bankruptcy clients pass this test simply by showing the details of their expenses, some actual expenses and some standardized Massachusetts expenses, therefore proving that they are in need of Chapter 7 bankruptcy protection in Massachusetts. The Trustee and the Court will look at those expenses to see if there are “special circumstances” such as medical or unemployment situations.