Social Security and Social Security Disability Insurance (SSDI) can sometimes be garnished to pay money you owe to the government, such as back taxes or federal student loans, and money you owe for child or spousal support.
SSI payments cannot be levied or garnished. Treasury's Financial Management Service can also offset, or reduce, your Social Security benefits to collect delinquent debts owed to other Federal agencies, such as student loans owed to the Department of Education.
However, you should know that Social Security, even Social Security Disability, can be garnished to pay some federal and state debt. Military pay and veterans benefits are also protected from commercial garnishment but can be garnished for court-ordered child and spousal support.
Social Security Benefits are only protected if they are direct deposited into an account that ONLY includes direct deposit payments from Social Security. If you deposit any other funds into the account with the benefits from Social Security, the payments will no longer be protected.
Therefore, because their income is protected from debt collection, seniors do not need to worry about losing any of their monthly income to debt collector garnishment. Concern about losing monthly retirement income to garnishment by a debt collector should not be a reason to file a bankruptcy.
Bank accounts solely for government benefits
Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would be exempt from garnishment.
A levy allows the creditor to take funds directly from a bank account to satisfy unpaid debts or taxes. In most cases, levies are permitted only by court order as part of a lawsuit judgment. However, certain government agencies, including the Internal Revenue Service, can levy a bank account without a court order.
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.
If the value of your resources that we count is over the allowable limit at the beginning of the month, you cannot receive SSI for that month. If you decide to sell the excess resources for what they are worth, you may receive SSI beginning the month after you sell the excess resources.
What States Prohibit Bank Garnishment? Bank garnishment is legal in all 50 states. However, four states prohibit wage garnishment for consumer debts. According to Debt.org, those states are Texas, South Carolina, Pennsylvania, and North Carolina.
If you receive Social Security, we'll suspend your benefits if you're convicted of a criminal offense and sentenced to jail or prison for more than 30 continuous days. We can reinstate your benefits starting with the month following the month of your release.
Establish a Special Needs Trust (SNT)
A Special Needs Trust is a legal arrangement that holds settlement funds on behalf of an SSI recipient, allowing the funds to be used for approved expenses without impacting SSI eligibility.
2. Garnishment Limits: How much your Social Security benefits can be garnished is limited. For example, under the Federal Payment Levy Program, the IRS can garnish up to 15% of your monthly Social Security benefits for unpaid taxes.
The bottom line. While debt collectors may not automatically sue over a $3,000 credit card debt, they have the right to pursue legal action if they believe it's a viable option.
The bad news is, if you are disabled and owe back taxes, the IRS can garnish 15% of your monthly SSDI payments to pay back the debt owed to them. However, the good news is you won't see your payments lower all of a sudden. The IRS will issue several letters before garnishment.
The law sets certain limits on how much debt collectors can garnish your wages and bank accounts. Certain federal benefits, such as social security benefits and veterans' benefits, generally cannot be garnished.
Debt Collection Protections for Seniors
Some of the legal ways seniors are protected from unfair debt collection are: Debt collectors can't garnish income from retirement accounts, Social Security, VA, or other government benefits.
The so-called “five-year rule” for Social Security disability allows people who have already received disability benefits to skip a required waiting period in the re-application process after they've returned to work.
You can stop a bank account garnishment by filing a claim of exemption or objecting to the garnishment in court. To challenge the garnishment, you must prove: The funds in the account are exempt (e.g., Social Security, disability, or other protected income). The creditor failed to follow proper legal procedures.
Ordinary garnishments
Under Title III, the amount that an employer may garnish from an employee in any workweek or pay period is the lesser of: 25% of disposable earnings -or- The amount by which disposable earnings are 30 times greater than the federal minimum wage.
Most states or jurisdictions have statutes of limitations between three and six years for debts, but some may be longer. This may also vary depending, for instance, on the: Type of debt. State where you live.
Generally, Social Security benefits are exempt from execution, levy, attachment, garnishment, or other legal process, or from the operation of any bankruptcy or insolvency law.
What Accounts Can the IRS Not Touch? Any bank accounts that are under the taxpayer's name can be levied by the IRS. This includes institutional accounts, corporate and business accounts, and individual accounts. Accounts that are not under the taxpayer's name cannot be used by the IRS in a levy.
It does not scrutinize or restrict specific items or transactions. Therefore, beneficiaries can use their SSI funds for various purchases according to their personal needs and preferences.