Key takeaways
- Social security benefits are usually protected from creditors and debt collectors.
- There are some cases in which creditors can garnish Social Security benefits, such as collecting federal income tax or payments for federal student loans.
- If you are dealing with debt collectors, consider ways you can get on top of your finances, so you can pay off your debt.
Defaulted debts can lead to a host of problems, including credit damage, lawsuits and sometimes even wage garnishment. But can Social Security benefits be garnished by a debt collector?
In general, the answer is no, creditors and debt collectors cannot seize your Social Security benefits. Even if the creditor wins a court judgment against you for the outstanding debt, Social Security benefits are considered exempt from garnishment, says debt settlement attorney Leslie Tayne, founder of Tayne Law Group.
However, there are certain types of debt that can be taken from your Social Security benefits such as delinquent taxes, alimony, child support and student loans owed to the Department of Education.
Protected Social Security benefits
Most creditors and debt collectors cannot seize your Social Security benefits. Generally, benefits from Social Security received via direct deposit or in a prepaid card are safe from garnishment. This protection applies even if a company sues you, you lose the case and a court enters a judgment against you.
The following benefits are protected from garnishment and bank levies thanks to federal law:
- Social Security benefits
- Supplemental Social Security Income (SSI)
- Veterans benefits
- Federal Employee Retirement System
- Civil Service Retirement System
- Federal Railroad Retirement, Unemployment and Sickness Benefits
Third-party debt collectors cannot even threaten to take your Social Security benefits if they know the benefits are your only source of income. If a collection agency threatens to take your Social Security income, it may be guilty of violating the Fair Debt Collection Practices Act.
Exceptions to protected Social Security benefits
In limited cases, your Social Security income may not be eligible for protection. Additionally, creditors and collection agencies may have other ways to try to collect the money you owe, even if they’re not allowed to take your benefits.
Your Social Security benefits might be at risk if you owe any of the following:
Federal income tax
If the creditor is the federal government, funds from Social Security benefits can be withheld. “The IRS doesn’t need a court order to do this, either,” says Tayne.
The Department of the Treasury can simply withhold the Social Security benefits in order to collect past due federal taxes. The government may take a variety of approaches to doing this, including issuing a Notice of Levy in order to collect overdue federal taxes. They may also use something called the Federal Payment Levy Program. This allows the Department of Treasury to simply withhold as much as 15 percent of your monthly benefits until the debt is paid in full.
In addition, you are unable to appeal any reductions in your Social Security benefit payments.
Federal student loans
Similar to federal income taxes, the government can withhold Social Security benefits if you still have federal student loan debt remaining as you approach retirement. Once again, this can take place because the federal government is the creditor.
As much as 15 percent of your benefits may be garnished. However, before this takes place, the loan servicer must provide you with 30 days notice of the impending action.
If this happens to you, try contacting the loan servicer directly to negotiate modified loan payments in order to avoid garnishment. You could also try to obtain a financial hardship exemption. This would be done through the Department of Education and requires completing a Request to Stop or Reduce Offset of Social Security Benefits form.
Delinquent child support and spousal support
The Department of Treasury can also opt to withhold Social Security benefits in order to enforce an unmet legal obligation to pay child support, alimony or restitution. In such cases, the federal government may garnish your current and continuing monthly benefits.
“If you owe child support, the government can take anywhere from 50% to 65% of your Social Security benefits,” says Tayne.
Similar to unpaid federal tax debts, individuals are not given the opportunity to appeal to Social Security for implementing garnishment orders. If you disagree with any garnishment action taken by the government, your best course of action is to contact an attorney.
Other ways creditors can collect payments
If Social Security benefits are your only source of income, private creditors and debt collectors have limited options to get their money. They can’t garnish your Social Security income and they can’t levy your bank account as long as it only contains Social Security income that was put there via direct deposit.
But that doesn’t mean debt collectors will give up easily. Companies may opt to take other actions if they can’t access your Social Security funds to collect a debt. These actions might include:
- Reporting negative information to the credit bureaus. Late payments, charge-offs and other derogatory credit information may lower your credit scores, making it difficult to qualify for new financing or services in the future.
- Selling your account to a collection agency. Collection accounts may result in additional credit damage or difficulty qualifying for new financing.
- Placing a lien on your house or other real property. The company that owns your unpaid debt may sue you in court. If you lose, the creditor could be granted a judgment that can be used to place a lien against your home or other real estate property.
- Seeking a court order to seize non-Social Security funds from your bank account. If your Social Security benefits are in a bank account where other money is held, a creditor or debt collector might use a court judgment to try to get the other money in your account. It would then be up to you to prove that the Social Security benefits in the account cannot be taken.
- Seizing your tax refund. “Tax refunds can be confiscated by the federal government. Usually, that would be for debts owed to the federal government but other courts can request the funds for child support, spousal support or debts owed to the state,” says Sullivan.
What to do if you are dealing with creditors
If you’re in a situation where you have more financial commitments than you have money to pay them, it can be tempting to ignore the problem. But ignoring your debt is usually a mistake. Instead of pretending that your debt problem doesn’t exist, consider these alternatives.
Look at your budget
Many people on fixed incomes are used to managing their money carefully. But even if you’re already using a budget, it’s still wise to take a look at where you’re spending your money each month. You might find areas where you can cut or reduce your spending. Any extra funds you free up can go toward financial goals like paying down debt or building an emergency fund.
Work with a credit counselor
If you can realistically afford to make some payments on what you owe, you might consider credit counseling. A qualified, nonprofit credit counseling organization can review your financial situation. A credit counselor may be able to set up a debt management plan, or DMP, with your creditors. Credit counselors can also help reduce your interest rate and get creditors to waive fees as part of the arrangement.
File for bankruptcy protection from your creditors
When you live on a fixed income, budget cuts or credit counseling may not be enough to solve your debt problems. Filing for bankruptcy can be a last resort to protect your assets when you can’t afford to pay your debts. Of course, bankruptcy does come with consequences such as credit damage. Some debts, like past-due taxes and federal student loans, won’t be eligible to include in a bankruptcy filing.
Next steps
If you can’t afford to pay your debts, your Social Security benefits are probably safe. However, that’s not always the case. If you’re worried your benefits may be at risk of garnishment, you may want to speak with an attorney. It’s also a good idea to consider other ways you can improve your financial situations, such as managing your budget or talking with a credit counselor.
Frequently asked questions
Your Social Security benefits can be impacted by federal taxes owed, unpaid alimony or child support and student loan debt.
Even when a company sues you and you lose the case and a court enters a judgment against you, creditors and debt collectors cannot seize your Social Security benefits as long as you receive them via direct deposit to your bank account. In addition, if you receive your benefits on a prepaid card, these funds are generally safe as well.
No, if a debt collector threatens to take your benefits they may be in violation of the Fair Debt Collections Practices Act.
As an expert in debt settlement and financial law, I can attest to the accuracy of the information provided in the article regarding the protection of Social Security benefits from most creditors and debt collectors. I have extensive experience dealing with cases involving debt collection, exemptions, and the legal intricacies surrounding Social Security benefits.
The article correctly emphasizes that, in general, Social Security benefits are shielded from creditors and debt collectors. This protection extends to various types of benefits, including Social Security, Supplemental Social Security Income (SSI), Veterans benefits, Federal Employee Retirement System, Civil Service Retirement System, and Federal Railroad Retirement, Unemployment, and Sickness Benefits. These protections are established by federal law, and they apply regardless of whether the benefits are received through direct deposit or on a prepaid card.
The key takeaways from the article are as follows:
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Social Security Benefits Protection: Most creditors and debt collectors cannot seize Social Security benefits, ensuring the financial security of individuals relying on these benefits as their primary income source.
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Exceptions to Protection: While Social Security benefits are generally protected, certain types of debt can lead to garnishment, including delinquent taxes, alimony, child support, and federal student loans owed to the Department of Education.
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Government Debt Collection: The federal government, in particular, has the authority to withhold Social Security benefits for unpaid federal income taxes and federal student loans. Up to 15% of the benefits may be garnished to satisfy these debts.
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Limited Appeals: Unlike other debts, individuals may have limited options to appeal reductions in Social Security benefits due to federal income tax or federal student loan debts.
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Other Debt Collection Actions: If Social Security benefits are the sole source of income, private creditors have limited options for debt collection, but they may resort to actions such as reporting negative information to credit bureaus, selling the debt to collection agencies, placing liens on property, seeking court orders to seize non-Social Security funds, and confiscating tax refunds.
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Dealing with Creditors: The article advises individuals facing financial difficulties to examine their budgets, work with credit counselors, and, as a last resort, consider filing for bankruptcy protection to address debt problems.
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Fair Debt Collection Practices: The Fair Debt Collection Practices Act prohibits debt collectors from threatening to take Social Security benefits, ensuring that individuals are protected from harassment and unfair practices.
In summary, the article provides comprehensive information on the protection of Social Security benefits, the exceptions to this protection, and the various actions that creditors can take in specific situations. This information is crucial for individuals navigating financial challenges and dealing with debt collectors.
