The Social Security Administration (SSA) announced that benefits will increase by 1.3% in 2021 for the annual cost of living allowance (COLA). Obviously, social security benefits are essential for older Americans to maintain current in their household expenses. The historically low COLA increase may expose more retirees to debt pressures.

SOCIAL SECURITY COLA INCREASE

The 2021 increase of 1.3% is the equivalent of approximately $240 per year for the average retiree. The COLA increase for 2020 benefits was 1.6%. The prior two (2) years the increases were 2.0% and 2.8% respectively.

The COLA increase applies to retiree benefits. COLAs for the Supplemental Security Income (SSI) program are generally the same as those for the Social Security program.

You can see all the historical increases here.

IMPACT ON DEBT AND BANKRUPTCY OPTIONS

Social security benefits and income are exempt from collection under 42 U.S.C. § 407. This means that creditors cannot collect any debt from social security benefits.

Social security income is not included in the income calculations to determine if a debtor can qualify for a Chapter 7 bankruptcy discharge under the Bankruptcy Code. Further, in Chapter 13 Bankruptcy cases, the calculation of how much disposable income a debtor has to repay creditors does not typically include social security income.

In Chapter 13 bankruptcy cases, Courts consider the amount that a debtor proposes to pay creditors under a Chapter 13 Plan in determining “good faith”. Courts review the total repayment amount where social security income and benefits are excluded from disposable income in Chapter 13 plans.