Can creditors snatch part of your Social Security check if you fall behind on bills? The answer depends on who the creditor is. The good news is, most financial creditors cannot garnish your benefits. But if you owe money to the U.S. government, it’s a different story. Uncle Sam’s reach is longer than most.
Financial Creditors
If you have credit card debt, medical bills, payments on loans to banks and other lenders, including payday lenders, they generally cannot get their hands on your Social Security checks to slap a garnishment on you. That does not mean they can’t take legal action, however, to get their money. In some states, those creditors may be able to garnish other income and assets you may have, such as wages from a part-time job. But they cannot garnish your Social Security benefits, Supplemental Security Income (SSI) veterans benefits, federal employee and civil service retirement benefits, or benefits from the Railroad Retirement Board Administration.
Your Responsibilities
Though generally speaking, your financial creditors cannot garnish your Social Security, there are some things you need to know to protect your money The Social Security Administration says that they are responsible to protect your benefits against garnishment, assignments, and other legal processes. Once the money is paid to you, it is still protected as long as it is identifiable as Social Security. Jim Miller, author of The Savvy Senior and a frequent contributor on the NBC Today Show provides these tips to ensure your Social Security check is protected:
- Your benefits must be directly deposited into your bank or onto a Direct Express DebitMasterCard. Benefits that are deposited by paper check into your account are not protected.
- Benefits that you transfer into another account are not protected.
- If you have credit cards or other loans at the same bank where your benefits are deposited and you owe money to that bank, your account can be frozen to pay your other debts. This is a tricky, because technically financial institutions are required to identify funds that are from Social Security, but mistakes happen and can be time-consuming to fix. For your own protection it is best to avoid the problem.
Then There Is the Federal Government
If you are on SSI, your benefits can’t be garnished for any reason But Social Security is a different story when the creditor is Uncle Sam. The fed can indeed hold back part of your benefits. They can garnish for:
- Federal income tax debt (15% per month till the debt is paid). Tax garnishments are done through the Federal Payment Levy Program.
- Student loans (and it does not matter how long ago you went to school). The first $750 of your check is safe, but after that, 15% per month can be withheld to pay your debt. If this is your situation, there may be some help for you if you have not already defaulted on your student loan. The National Consumer Law Center operates a website that offers information and advice for those having trouble repaying student loans. Find more information at NCLC.org.
- Child support or spousal support. If you are at least 12 weeks behind, a whopping 50% to 65% can be taken. This is done through the national Court Ordered Garnishment System, and the maximum that can be withheld depends on your state’s law. The garnishment is limited to the lesser of the maximum allowed by your state or the maximum under the Consumer Credit Protection Act.
- Non-tax debt owed to other federal agencies.
- Defaulted home loans.
- Certain civil penalties.
If you believe your Social Security benefits (or other protected benefits) are being garnished improperly, you need to seek legal help. You can get referrals from the Eldercare Locator at 800-677-1116, or log onto findlegalhelp.org, which is provided by the American Bar Association for free or low-cost legal help in your area.
Sidebar: Have You Been Notified of a Pending Garnishment?
According to attorney and tax representative John Harman (of JK Harris & Company), you generally have about 120 days from the time you receive the first notice to respond, before the garnishment takes effect. The agency that issues the garnishment notice must, by law, provide you with information on how to appeal the action.
If the agency is the IRS, you will receive three notices, said Harman. From the time you receive the third notice you should have 30 days to make an arrangement to pay the debt before your monthly check is docked. Once an arrangement to pay is made, the garnishment of your Social Security benefits will be released.
Individuals who owe tax debt may be able to negotiate to pay less than you owe, but the rules are strict. The process is called Offer in Compromise, and requires a $150 nonrefundable fee to apply, so don’t attempt this frivolously.
Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.