Should I Sell My Disability Payments to Avoid Bankruptcy?

If you recently received a disability settlement, it is possible that a company has contacted you with an offer to give you a structured settlement in exchange for selling some of your disability payments. As an article from the Federal Trade Commission (FTC) explains, this practice is known as “factoring,” and it can have harmful consequences for struggling debtors. What do you need to know about “factoring” and the ways it could impact your ability to pay your bills in the long run? Why might a debtor choose this route instead of filing for personal bankruptcy?
What is “Factoring” and How Does it Work?
In general, “factoring” means that you will “sign over some or all of your disability settlement payments for a period of time.” The lump-sum payment that the company will give you in exchange for your disability payments typically is going to be less in the long run than the total of the disability payments. Why would anyone do this?
Factoring gives struggling debtors a way to get quick cash. However, there are many different issues that can arise with factoring. For instance, companies can charge high fees and interest rates. If you receive a relatively large lump-sum payment, it could have enormous tax implications for you. Are there better options to consider?
Your Disability Benefits may be Exempt if You File for Personal Bankruptcy
There are alternatives to factoring. If you owe a significant amount of debt and cannot make your payments—and do not see a way in which you will get back on track anytime soon—you might also be thinking about filing for consumer bankruptcy. Depending upon the specific facts of your case, you may be better off filing for bankruptcy if you want to get a fresh start financially.
Depending upon the state in which you file for bankruptcy, you may be able to use federal exemptions, or you may have to use state exemptions. Debtors who file for bankruptcy in Chicago must use Illinois Bankruptcy Exemptions (735 ILCS 5/12-1001). Exemptions are assets or property that are exempt from your bankruptcy case. This means, for instance, if you file for Chapter 7 bankruptcy, any exempt property will not be subject to liquidation. Under Illinois law, disability benefits are exempt.
You should speak with a Chicago bankruptcy lawyer to learn more about the disability settlement you received and whether it would be exempt if you file for bankruptcy. If disability benefits represent your primary income, and those benefits meet the requirements for exemption, it could make a lot of sense to consider the benefits of Chapter 7 bankruptcy.
Seek Help from a Bankruptcy Attorney in Oak Park
If you are struggling to pay debts, filing for bankruptcy may be a good option for you, even if you receive disability benefits. An experienced Oak Park bankruptcy lawyer can examine your finances today and can help you to learn more about options available to you. Contact the Emerson Law Firm to speak with an advocate about your situation.
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