Bankruptcy and Government Benefits

Many potential bankruptcy clients that I encounter these days have not only lost good paying jobs, but are also receiving government benefits.  Clients often ask, “what will happen to my government benefits if I file for bankruptcy?”  Others come to me with a much different problem, and ask “if bankruptcy can discharge their benefit overpayments?”  Lastly, many clients ask how will their bankruptcy effect unrelated financial benefits such as immigration benefits or the ability to get a business license or construction bond.

Let’s the start the discussion by listing the most benefits that many clients receive to supplement their low income.  If you have recently lost an official job where you were paid a W2 wage, you are entitled to unemployment compensation.  The amount you receive depends on your highest average gross earning quarter in the last five quarters.  Then there is a specific formula that figures out your weekly compensation from $40.00 up to a maximum of $450.00 per week.  Currently the maximum period for receiving unemployment benefits from the state of California is 26 weeks.  Clients also receive short term and permanent disability from the Social Security Administration if they become disabled or go on maternity leave.  Yet others who were specifically injured at work receive worker’s compensation benefits.  Again the amount received is based on your overall earnings and how much you paid into the system.  Others receive benefits via the California Electronic Benefit Transfer which is typically food and cash welfare benefits.  Food benefits are federally authorized benefits that can be used only to purchase food and non-alcoholic beverages.  Food benefits are distributed through the Supplemental Nutrition Assistance Program (SNAP), formerly the Food Stamp Program. Cash benefits include state general assistance, Temporary Assistance for Needy Families (TANF) benefits, and refugee benefits.  The amounts receive here depends on your income and family size.  Last but not least are all health care benefits from Medi-Cal and others.

Perspective bankruptcy clients should rest assured that none of the benefits listed above can be lost for filing bankruptcy.  Likewise if you are in the process of receiving your benefits or are expecting a large lump sum payout for any of these benefits, these are all exemptable assets that are fully protected and cannot be turned over to your creditors upon filing for bankruptcy.  Therefore upon filing your benefits and perspective claims for benefits will continue as usual and you have nothing to worry about.

Sometimes clients wrongly receive the benefits listed above, whether it was because they were never eligible or failed to report a change of income or circumstance after receiving their benefit.  For example, if you lost your job and are receiving unemployment compensation and then find employment but fail to report the job, you will eventually get a bill for the benefits that were overpaid.  Not only will you owe the amount that was overpaid with interest, but the agency will hit you with a 30% penalty for the amount wrongly paid out and it will have to be repaid or will be offset from your future benefits.  Elderly and disabled clients have run into situations where they owe for Social Security benefit overpayments and even needy families on food stamps and cash aid that have returned to work and failed to report the change in income have been hit with benefit overpayment bills.

Luckily, again the majority of these benefit overpayments are dischargeable in bankruptcy, with one notable exception: welfare benefits based on minor children.  If the basis of receiving food stamps and cash aid was due to your minor children, then such a benefit is tantamount to receiving a domestic support obligation, i.e. lumped into the same category as child support and therefore deemed non-dischargeable in bankruptcy and receive a priority status that can only be repaid in full in our outside of bankruptcy.

Finally many clients ask whether during or after their bankruptcy if they can get immigration benefits, a business license, or a construction bond.  The answer is a positive yes on all fronts.  Immigration and bankruptcy have no connection at all.  Bankruptcy is a civil matter that does not effect your ability to receive citizenship or sponsor other family or work based immigrants to the United States.  As a matter of fact the word bankruptcy is not once mentioned in the Immigration Nationally Act (INA).

There is also no connection between bankruptcy and business license applications.  So if you are applying for a child care license, contractor’s license, commercial driver’s license, or general business license, the application process does not have any mention or practical need to know about any past, present, or future bankruptcies.  However, when it comes to getting a construction bond, you will receive one despite your bankruptcy, but the rate may not be as favorable.

If you are contemplating bankruptcy and have further questions about benefits, how they can be protected, and how to discharge your overpayment don’t hesitate to call Mark Shmorgon at 916-640-7599 or write him at

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