Getting endless calls from debt collectors can be super stressful. A lot of times, the threats can be very alarming especially if they start telling you that you’ll have to go to jail or that they will take your Social Security benefits. If you’re strapped for cash and you’re barely getting by, you’re probably feeling anxious and you’re wondering whether they can follow through these threats.
One of the topmost questions is whether debt collectors can take your Social Security check. This article will provide you a clear idea of whether this is possible and what you can do to protect yourself.
Can Social Security Be Garnished for a Lawsuit?
Garnishment refers to a court order allowing the creditor to seize assets, money, or wages to settle an unpaid debt. If you are only receiving Social Security benefits as your main source of income, you might be wondering whether it is possible for debt collectors to garnish this money.
The answer to this question is not a simple YES or NO response. While there is a general belief that Social Security payments cannot be taken by debt collectors, this is not necessarily true.
The more accurate answer to whether Social Security benefits can be taken to pay off a debt is: IT DEPENDS ON THE KIND OF DEBT YOU HAVE.Â
There are different types of debt but for this purpose let’s classify them first into two categories:
- 1. Debt from Private Creditors – NO
- 2. Debt from Federal Agencies -YES
Debts from private creditors may include credit card debt, personal loans, payday loans, and medical bills. According to the Federal Trade Commission website, federal benefits including Social Security benefits are ordinarily protected from private creditors. That means that if the debt collector is chasing you for credit card debt, they cannot garnish or take your Social Security benefits even if they have already won a court judgement against you.
While the types of funds that are exempt from garnishment may vary from state to state, some of the common benefits that are exempt include Veterans Benefits, Retirement Benefits, Disability Benefits, Child Support and Spousal Payments. You have to check with a local attorney in your state or a legal aid office to check what funds are protected from garnishment.
If the creditor won a judgement against you, this gives them the legal right to collect the debt from you. However, if you are only receiving Social Security benefits, they are prohibited to take this money. You will then be considered judgement proof or collection proof.
On the other hand, if your debt is a federal debt, then this can be deducted from your Social Security benefits. Again, only federal agencies are allowed to collect debts from your Social Security benefits so if you are receiving threats from private debt collectors, then these claims are false.
What Kind of Debts Can Be Deducted From my Social Security Benefits?
If your debt is a federal debt then the government can deduct money from your Social Security check. These debts may include the following:
- • Federal Student Loans
- • Federal Taxes
- • Child Support and Alimony
- • Victim Restitution
- • Food Stamp Overpayment
- • Other Federal Debts
The federal government has the right to legally take a portion of your Social Security or other federal benefits if your debt is one of the above. However, even if the federal agency can take money from your Social Security check, they cannot take the entire amount.
How Much Can be Taken From my Social Security Payments?
For non-tax debt like federal student loans, the first $750 of your monthly Social Security payments is safe from garnishment. Plus, no matter how much benefits you get a month, the federal government cannot take an amount that is more than 15% of your monthly Social Security payments. So, if you are receiving $1,000 a month, the maximum that they can take is $150 per month.
For federal tax debts, the government can take 15% of your Social Security check, without any consideration of how much money will be left. For child support and alimony, the deduction can be from 50-65% depending on your situation and your local state laws.
If the type of Social Security check that you are receiving is SSI or Supplemental Security income, the entire amount is protected from garnishment, even from the federal government. SSI cannot be garnished because this is a federal income program designed to help Americans to meet their basic needs for food, shelter, and clothing.
Can Social Security or Disability Benefits Be Garnished for Student Loans?
With unpaid student loans, this will depend if you have a federal student loan or a private student loan. If you have a student loan borrowed from a private lender, then they cannot go after your Social Security benefits. It does not matter whether the private lender already won a judgement to collect the debt from you. If you are only receiving Social Security benefits, then they cannot collect money from you.
Many parents and seniors who cosigned a private student loan for their children or grandchildren are often worried that their social security benefits will be deducted. If the loan was taken from a private lender, they cannot take these benefits from you or garnish any amount off your Social Security check.
For federal student loans, the federal government can deduct money from your Social Security check but as stated in the earlier section, they can only take up to 15% and your balance cannot drop below $750 a month. There is no statute of limitations for student loans so these loans do not expire nor can they be discharged in bankruptcy. This means that student loans debt can be collected indefinitely.
If you have unpaid federal student loans, it is best if you check whether you can be eligible for repayment plans or even student loan forgiveness.
Can Social Security Be Garnished for Medical Bills?
Medical bills are considered private debts, therefore, your social security check cannot be garnished or taken to pay for medical costs. While collection agencies can threaten you and keep calling you to pay up, the law prohibits them from taking money from your Social Security benefits.
How to Prevent Your Social Security Checks From Being Garnished?
Even if your Social Security checks are exempt from garnishment by private creditors, there are some cases wherein your funds may still be seized from your bank account or your wages will be garnished.
It is then important that you do not assume that creditors will not find ways to collect money from you. In order to protect your Social Security check from being taken by private debt collectors, you can consider the following actions.
1. Have a Separate Account for Federal Benefits
Social Security benefits and other federal benefits are only automatically exempt if they are directly deposited into your bank account. The bank is required by law to check whether the money came from Social Security payments before freezing that amount to pay up your creditors.
It is the duty of the bank to review where the funds came from and if they came from Social Security payments, they cannot freeze the funds. If you have other funds from other sources, it is much better to use a separate bank account. This will prevent or avoid the bank from making the mistake of freezing your Social Security payments as they will not be mixed with other funds. Using a separate account for your federal benefits could help protect your money from being frozen in case of a bank levy.
2. Don’t Transfer the Money to a Separate Bank Account
It is advisable for you to have your Social Security payments directly deposited into your bank account. If you transfer or deposit the money in a separate bank account, this amount can still be garnished because the bank has no way of knowing that this income came from Social Security payments. In case your bank account is levied, the burden of proof will be on you to prove that the funds were Social Security payments.
3. File a Claim of Exemption
But what if you already transferred the funds or deposited the money to another account? Can you still recover the money?
If you receive a notice from the bank that your account is frozen and your money is going to be seized or garnished by the creditor, you have to file a claim of exemptions stating that the money in the account are Social Security payments. You have to provide proof to validate your claim, however, if the funds were already frozen, the funds will not be released until the judge decides that the funds are exempt.
4. Don’t Keep Social Security Payments in Your Bank Account for More than 60 Days
Even if you are receiving a direct deposit of Social Security benefits in your bank account, it is not advisable to keep the funds in your bank account for more than 60 days, especially if you are aware that a creditor is after you.
If you’re using your bank account as a way to keep savings or money you did not spend, the sad truth is that all of your Social Security benefits may not be protected because there is a certain lookback period that the bank will have to take into consideration. The lookback period is normally two months or 60 days prior to the notice of garnishment or bank levy.
Protection of Social Security Benefits Within the Lookback Period
What does the lookback period mean? It means that the only protected funds will be two months’ worth of Social Security payments. For example, if you are receiving $1,000 a month from Social Security, the bank will only protect up to $2,000 from your account.
If you have less than $2,000, then that will not be a problem because your account will not be frozen. So, if there’s only $700 left in your account, that should not be frozen by the bank because it is less than the Social Security payments within the lookback period.
Even if you make a deposit from other funds in that same bank account within the two-month lookback period, as long as the money remaining in the account does not exceed $2,000 then the account cannot be frozen.
However, if you have more than $2,000 in your bank account, then the remaining amount will be frozen. Let’s say in the last two months, there were two deposits of $1,000 from Social Security, plus $1,000 that you deposited yourself, and $3,000 that was left more than two months ago.Â
The total balance in your account when the creditor notifies your bank of the bank levy is $6,000 so the bank can only protect $2,000 and will freeze the remaining $4,000. Even if the $3,000 came from savings from previous Social Security payments, that amount could still be garnished or seized because of the 60-day lookback period.Â
Protecting Your Social Security Benefits from Debt Collectors
Many debt collectors will often go to great lengths to get you to pay the money that you owe them. Even if you are unable to pay due to your present circumstances, collection agencies will often use scare tactics to rattle you and force you to pay money. If your only source of income is Social Security, then you should not worry about private creditors because the law is on your side.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
