Social Security and Garnishment 101

Social Security benefits are a big part of the economy: Roughly 90% of Americans age 65 and older receive Social Security benefits each month. Federal and state laws protect these benefits from being seized by creditors in most cases, though there are some exceptions.

This article covers when Social Security benefits are (and aren’t) protected against creditor actions like garnishments and bank levies. It also explains how to ensure your benefits are protected and discusses the possibility of bankruptcy as an alternative way to protect your benefits.

How Creditors Use Garnishments and Levies To Collect Debts

If you don’t pay a debt, the creditor can file a lawsuit against you. If the creditor wins, they get a judgment, which is a court document ordering you to pay the debt. When a creditor has a judgment against you, they can use procedures such as garnishments and levies to collect the debt.

Different state laws use the terms garnish and levy in different ways. In this article, garnish means taking a portion of your wages, benefits, or other income before you receive it. Levy means taking benefits or other money you’ve already received out of an account, such as a checking or savings account.

Collection actions like letters and phone calls require you to voluntarily send payment. Levies and garnishments, on the other hand, allow creditors to take money directly from you without your consent. Most creditors must have a judgment against you to use these procedures. But for some types of debt, such as past-due child support or delinquent taxes, no judgment is required. 

Types of Social Security Income

The Social Security Administration distributes four main kinds of Social Security benefits:

• Retirement income: Retired workers age 62 or older qualify for these payments. The benefit amount depends on age, preretirement salary, and the number of years worked.

• Social Security Disability Income (SSDI): These benefits are paid to qualified workers who can’t work anymore due to disability.

• Supplemental Security Income (SSI): These payments are available to people who can’t earn a living wage due to age or disability.

• Survivors’ benefits: These payments are made to the surviving children and spouses of qualified deceased workers.

Social Security benefits get more protection under the law than wages and other kinds of income. But creditors can still take Social Security income in certain situations, as discussed below. 

Garnishment: Taking Benefits Before You Receive Them

Federal laws, and the laws in most states, prohibit most creditors from garnishing your Social Security benefits before you receive them. This includes nearly all private creditors, such as banks and credit card companies. SSI benefits receive the most protection. SSI income can only be garnished by the Social Security Administration, and only if you’ve received an overpayment of benefits.

For all other types of Social Security income, your benefits can only be garnished for the following types of debts. There are also limits on how much of your benefit can be garnished in each situation.

• Past-due criminal restitution payments: Depending on your state’s law, up to 25% of your benefits^[0] can be withheld.

• Delinquent alimony or child support payments: The total amount that can be garnished depends on your state’s law, but it can’t exceed 60%^[0] of your benefits. If you’re more than 12 weeks behind, though, the cap increases to 65%.

• Past-due federal taxes: Up to 15%^[0] of your total benefit can be garnished for federal taxes.

• Delinquent debts owed to other federal agencies: This includes defaulted federal student loans. The federal government can garnish up to 15% of your benefits^[0], but the garnishment can’t reduce your payment to less than $750.

Bank Levy: Taking Benefits After You Receive Them

Most creditors are prohibited from garnishing your Social Security benefits before you receive them. Even after your benefits are deposited into your bank account, they’re still protected from most creditors, although the rules are a little more complicated.

Benefits That Are Automatically Protected

Before your bank levies money from your account, it must first check to see whether any Social Security benefits have been directly deposited into that account within the past two months. If so, the total amount of all Social Security benefits — and all other eligible federal benefit payments — deposited during those two months is automatically protected from most creditors.

There is no limit on the amount that can be protected under the automatic rule. The automatic protection applies even if you own the account jointly with someone else, and even if there is money from other sources in the account. But there are some restrictions on what’s automatically protected:

• The automatic protection rule only protects benefits that were directly deposited into the account or directly loaded onto a benefit card. Benefits that are transferred from another account aren’t automatically protected.

• Benefits aren’t protected if they were deposited more than two months ago.

• Only the protected amount (the total of all federal benefit deposits within the past two months) qualifies for automatic protection. If your account contains more than this amount, the additional money can still be levied.

Benefits That Are Protected Under State Law

If you have Social Security benefits that don’t qualify for automatic protection, you might still be able to protect them using your state’s exemption laws. Most states have laws that provide some protection for Social Security benefits. Since these protections aren’t automatic, though, you must take action to enforce them. First, you must notify the court that issued the levy that the money in your account is exempt (protected). Then, you must present evidence showing the court that the money in your account qualifies for the exemption.

You’ll need to act quickly to prevent your benefits from being sent to the creditor. Your bank account might be frozen while the court determines whether the money in your account is exempt. If your Social Security benefits are deposited into an account along with money from other sources, it can be difficult to prove that your account qualifies for protection. To avoid this problem, it’s best to have Social Security income deposited into a designated account and keep that account separate from all other money.

Benefits That Aren’t Protected Against Bank Levies

The same creditors that can garnish your Social Security benefits before you receive them are also allowed to levy benefits from your bank account. Creditors can take Social Security benefits from your bank account to collect delinquent payments on child support, alimony, criminal restitution, and debts owed to the federal government. The automatic protection rule doesn’t apply to these debts, and neither do most states’ exemption laws.

SSI benefits are the exception. No creditor, not even the Social Security Administration, can take SSI benefits out of your bank account without your consent. Of course, in some cases, you may need to prove that the money in your account is SSI income.

Bankruptcy: An Alternative Way To Protect Social Security Benefits

If your Social Security income doesn’t qualify for other types of protection, filing bankruptcy may protect your benefits from your creditors, at least temporarily. When you file bankruptcy, the automatic stay immediately stops all collection actions, including garnishments and bank levies.

You may be able to discharge (eliminate) your debt in bankruptcy. While some debts, such as past-due child support, can’t be discharged, filing bankruptcy can still give you a chance to work out payment arrangements with those creditors and avoid a levy or garnishment.

Let’s Summarize…

Most private creditors can’t garnish your Social Security benefits before you receive them. Social Security income can be garnished to pay some types of debts. These include past-due alimony, child support, criminal restitution, and federal taxes, as well as defaulted debts owed to other federal agencies (including federal student loans).

Social Security benefits, other than SSI, can also be levied from your bank account to pay these debts. But Social Security benefits in your bank account are protected from all other creditors. Sometimes this protection is automatic. Other times, you must take action to show the court that your benefits are protected. Keeping your benefits in a separate bank account makes it much easier to prove they qualify for protection. Bankruptcy may be a way to protect Social Security benefits that don’t qualify for other kinds of protection.