Monday, February 11, 2008

Social Security Disability and Financial Problems

A North Carolina bankruptcy attorney recently wrote about something that is obvious for individuals who are connected to the social security disability process: an applicant can go broke while waiting for their SSDI claim to be approved and can potentially end up in the position of having to file for bankruptcy.

As she pointed out, many individuals will resort to using credit cards and lines of equity to meet expenses while they wait for a disability approval.

My first comment: if at all possible, don't use credit cards to finance living expenses. If you don't have any choice, however, it goes without saying that a person will simply have to do...what they'll have to do.

My second comment: be extremely careful about using the equity of your home to finance living expenses. Because, at the very end of the process, the most important thing you will have is the home you live in.

Years ago on Disability (way, way before it became fashionable for the "newspaper article of the day" on disability backlogs), I began writing about the long waits for social security disability claims to be processed. And one of the reasons I did so was because I had the distinct belief that the social security administration was not informing the public of the realities of how long cases can take.

Over the years, I've spoken to too many claimants who simply assumed that, after filing for disability, their claim would be approved in a matter of weeks. This is, of course, an unwise assumption. And for claimants who make financial decisions based on such an assumption, the assumption becomes potentially dangerous.

The simple fact of the matter is that individuals who file for disability should:

1. Dig in for the long haul and expect that their disability claim will be denied (because, statistically, it is simply likely).

2. Rule out unnecessary purchases.

3. Consider the fact that a disability claim can take up to three years to resolve. This being the case, a claimant who has been denied for disability may wish to consider restructuring their debt while they still have the chance.

I say this because a claimant who has been denied will have to file disability appeals and will probably have to attend a hearing which may take 2 or more years to get to.

I also mention this as a possible strategy because many claimants end up in foreclosure or bankruptcy when they could have avoided situations like this by A) being more informed about the social security disability process and B) planning more aggressively for a worst case scenario.

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