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Can a Creditor Garnish or Levy My Social Security?

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In a Nutshell

You have worked hard your entire life, but now that you have fallen victim to difficult times, you stopped making payments on your credit cards and other debts. As a result, a creditor has filed a lawsuit against you and is seeking a judgment. Are you at risk of having your Social Security taken away from you? Continue reading to learn more about how federal law protects your Social Security benefits from garnishment, levy, or seizure in most situations.

Written by Attorney Alexander Hernandez.  
Updated August 26, 2020


You have worked hard your entire life, but now that you have fallen victim to difficult times, you stopped making payments on your credit cards and other debts. As a result, a creditor has filed a lawsuit against you and is seeking a judgment. Are you at risk of having your Social Security taken away from you? Continue reading to learn more about how federal law protects your Social Security benefits from garnishment, levy, or seizure in most situations.

Collection Lawsuit Basics

When you stop making monthly payments on your credit card, the credit card company will try to collect on the debt for the next 30 to 90 days. If the original creditor is unsuccessful, they can either proceed to file a lawsuit against you or sell the debt to a collection agency or debt collector. Besides credit card accounts, other debts can be sold to a collection agency, including outstanding medical bills, student loans, and deficiency judgments.

If the creditor chooses to file a lawsuit and you fail to file a legal response to the claims being made, the court will accept the claims as stated by the creditor as true. The court will then grant a default judgment, as you failed to fight the case. This only speeds up the process in favor of the collection agency since they can proceed with a wage garnishment or bank account levy against you. 

A wage garnishment is a court order that allows the creditor to take up to 25 percent of your paycheck after taxes, and use those funds towards satisfying the balance of the unpaid debt. Unless a bankruptcy is filed, the garnishment will continue until the debt is paid in full. If you file an answer to the lawsuit, the creditor may still get a judgment against you if they win their case.

What Happens When a Judgment is Obtained by a Creditor?

When a creditor obtains a judgment against a debtor, they are given more options to collect their debt beyond demanding payment via phone or letter. Once the creditor has a court judgment against you, you’ll receive a notice of execution which will outline your rights and state that you may own certain property that is exempt, another way of saying protected. However, the notice of execution puts you on notice that the creditor is proceeding with collecting on the judgment.

When the judgment creditor proceeds to collect on the debt, they have several options available such as levying your bank account. After you’ve received a notice of levy, your bank may be required to disburse the funds in your bank account to the creditor. 

If you are served with a notice of execution for garnishment, your creditor may be entitled to collect up to 25 percent of your paycheck before your paycheck funds are distributed to you. If you’re considering filing for bankruptcy, the wage garnishment continues until bankruptcy is filed or the debt is satisfied. 

Can My Social Security be Garnished or Levied?

Social Security disability is a federal benefit funded by the Social Security Administration. There are two types of disability benefits: Social Security disability Insurance (SSDI) and Supplemental Security income (SSI).To qualify for Social Security’s Disability Insurance, you must have worked for a certain period and your disability must significantly impair your ability to work. If you don’t qualify for SSI, you may qualify for Supplemental Security Income (SSI) which applies when you have limited income and are either disabled or have a disabled dependent. Social Security retirement benefits start when you become eligible under retirement age restrictions. This is a benefit owed to you under the Social Security Act for paying taxes. The good news is, for the most part, your Social Security benefits are protected from creditors. Your benefits are also protected in bankruptcy. However, there are exceptions and issues you should be aware to better ensure that you can protect yourself and your entitlements. 

For example, when you receive your monthly Social Security check or if you receive it via direct deposit, those funds shouldn’t be commingled (mixed) with other funds. By mixing your Social Security payments with other money, your income could lose its exempt or protected status. At that point, you would need to request a court hearing to prove which funds are from Social Security and which funds are from other sources. 

What is Judgment Proof?

There are two major phases of a lawsuit filed against you by a creditor. The first phase is the creditor getting a judgment against you. The next phase is the creditor proceeding to collect on the judgment.

If you have no assets or income, or your only income is Social Security benefits, then you’re judgment proof. This means almost all creditors have no way of collecting on the debt. Note that being judgment proof doesn’t mean that a creditor won’t sue you, it just means they have no way of collecting the debt that is owed. 

Creditors That CAN Take Social Security

While your Social Security income is safe from most creditors, it isn’t safe from the federal government or state governments. If you owe the IRS or state back taxes, federal student loans, or you have received more federal or state benefits than you were entitled to, your Social Security benefits are subject to garnishment. Your Social Security benefits are also subject to garnishment for past due alimony or spousal support, and child support.

Should a Borrower File Bankruptcy if the Sole Source of Income is Social Security?

You might be thinking, “Why bother to file for bankruptcy if I’m judgment proof?” You might be judgment proof, but it still may be to your benefit to file for bankruptcy anyway. Consider that you may be judgment proof today, but not tomorrow. For example, what if you decide to go back to work part-time while still collecting disability benefits? The money earned from your job could be garnished. Also, creditors use pressure tactics to try to settle a case, which means there is no doubt they’ll continue contacting you. While creditors and collection agencies have to comply with the Fair Debt Collection Practices Act when it comes to collections, there’s a lot to be said for peace of mind and ending creditor calls and communications by filing for bankruptcy. 

Conclusion

Even if you receive Social Security benefits and may be judgment proof, you may still want to consider filing for bankruptcy, especially since your disability benefits are likely to be protected during that process. Remember, if you can’t afford to hire a bankruptcy lawyer, you can use Upsolve’s free web app to prepare your Chapter 7 bankruptcy forms.



Written By:

Attorney Alexander Hernandez

LinkedIn

Since graduating from Nova Southeastern School of Law in 1999, Alexander Hernandez has focused a majority of his law practice on bankruptcy law. He was a founding partner of the South Florida Bankruptcy Center which focused exclusively on Chapter 7 and Chapter 13 bankruptcies. Al... read more about Attorney Alexander Hernandez

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