Keep your benefit money separate if you receive unemployment, Social Security, disability, or other government benefits! This will allow you to protect those benefits in certain instances, such as filing bankruptcy or being sued by a creditor.
A person I’ll call Ted (not his real name) with debt problems recently contacted me for help. Ted had been receiving unemployment benefits since the COVID pandemic. He wanted to file chapter 7 bankruptcy, which would have been the correct solution for his debt problems. However, due to the increased unemployment benefits during COVID, Ted had amassed more funds in his bank accounts than he could normally have protected in bankruptcy. As a government benefit, unemployment benefits are automatically protected (exempt) from a chapter 7 trustee taking them to pay creditors, so this would not have been a problem if Ted had kept his unemployment funds separate from his other funds. However, Ted did not keep his funds separate; instead, all of his money was in one bank account. It would have been impossible for Ted to prove which money in his bank account came from his unemployment benefits, so Ted could not file chapter 7 bankruptcy without the trustee taking a large portion of his money to pay his creditors.
You might never need this protection, but it can’t hurt to keep government benefits in a separate account, and doing so could certainly help. If you have debts that you cannot pay, contact a bankruptcy attorney today.