If your sole source of income is Social Security retirement income, disability benefits, or other federal benefits and you keep these funds separate from any other funds, most creditors aren’t likely to garnish your benefits. That’s because you’re probably judgment proof. As a result, a creditor can't secure a garnishment order or take money from your bank account.
If you don’t repay a debt, a creditor or debt collector can sue you. If the creditor wins, the judge can issue a garnishment order. This type of order allows a debt collector to take money from your paycheck or bank account. If you receive Social Security disability benefits, you likely want to protect your benefits. So it’s important to know how Social Security benefits are treated during garnishment.
This article covers how garnishment affects Social Security benefits.
What Are Social Security Benefits?
The federal Social Security Administration distributes three primary kinds of Social Security benefits:
Supplemental Security Income (SSI) – Payments to people with disabilities and adults over age 65 who meet income limits.
Social Security Disability Insurance (SSDI) – Payments to adults with serious disabilities that affect their ability to work.
Social Security Retirement Benefits – Replacement income for eligible retirees and their families.
The federal government issues Social Security checks to eligible individuals. Nowadays, monthly payments are directly deposited into a bank account or onto a debit card the federal government issues.
Are My Social Security Benefits Safe From Creditors?
If you take out loans or credit cards, you’re legally required to pay your creditors back. Typically, a debt collector can sue you if you miss payments or default on an account. If they win, the court issues a judgment against you. This judgment can result in a garnishment or bank account levy order.
A garnishment is a court order requiring an employer to keep part of an employee’s income and send it directly to a creditor. Wage garnishment orders most often apply to employment-based income, not benefits, alimony, or child support. A bank account levy requires a bank to withdraw money from a debtor’s personal bank account to pay back creditors.
Debt collectors can’t garnish your wages or bank account if you’re judgment proof. Individuals who are judgment proof have very little income, don’t have wages available to garnish, and only own legally protected assets. If your sole source of income is Social Security retirement income or disability benefits, the court will likely consider you judgment proof. As a result, collection agencies and creditors can’t get a garnishment order against you or take money from your bank account. This is true even if they somehow secured a bank account levy.
Don’t Commingle Your Funds if You’re Judgment Proof
If you’re judgment proof, it’s important to handle your Social Security income and disability income carefully. Don’t commingle these funds. In other words, don’t mix these funds with other income. If you do, you put your money at risk. A portion of your combined account may be subject to debt collection like garnishment. To protect your benefits, keep them separate at all times.
Your Debts Don’t Disappear if You’re Judgment Proof
Being judgment proof doesn’t mean that you don’t have to manage your debts. Creditors will still report overdue balances and collection activity on your credit history. This will hurt your credit score. Being judgment proof means it’s not worth it for creditors and debt collectors to sue you for nonpayment because there’s nothing to collect. But this probably won’t stop debt collectors from using other debt collection methods, including nagging phone calls and letters, even if they can’t back up these efforts with a lawsuit.
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Who Can Garnish Social Security?
Even if you’re judgment proof from collection agencies and creditors, the federal government or state governments may still be able to pursue collection actions against you if you owe them money. The state government can garnish your benefits if you owe back taxes or court-ordered child support or alimony. The federal government can garnish your benefits if you owe federal income tax or you’ve defaulted on your student loans. The government doesn’t have to get a court order to garnish your Social Security income.
If you have unpaid federal taxes, the Internal Revenue Service (IRS) can collect back taxes directly from your Social Security income and/or disability benefits. The IRS doesn’t need a court order to do this, but it must send you a letter to notify you that it’s taking money out of your monthly benefits.
Federal Student Loans
Similarly, federally backed student loan servicers can take money from an individual’s Social Security benefits without a court order. This applies to the loan borrower and to any co-signers on the federal student loan. Unfortunately, this often affects grandparents who co-signed for their grandchildren’s student loans.
What Happens to Social Security in a Bankruptcy Case?
If you’re living primarily off your Social Security disability benefits, one accident or unexcepted event can plunge you into debt. Filing Chapter 7 allows you to eliminate outstanding credit card debt, medical bills, and other eligible unsecured debt in just a few months. Generally, Social Security benefits are protected by bankruptcy exemptions, and the benefits don’t count against you in the Chapter 7 means test.
If you file for bankruptcy, make sure your disability benefits are separate from your other accounts. Disability benefits are typically protected by exemptions, but combining them with other funds can complicate your bankruptcy case. Chapter 7 may be worth exploring if you can’t afford to pay your unsecured debts.
People who receive SSDI or other disability benefits are generally judgment proof. This means, most creditors can’t get a garnishment order against them to take money from their bank account. State or federal governments are exceptions. They can garnish your benefits if you owe back taxes or you’ve defaulted on your student loans. If you get a notice that your benefits are being garnished, read it carefully to better understand why the government is taking a portion of your funds. You can always seek legal advice if you have questions about your specific situation.
Finally, remember to keep your benefits in a separate bank account from other accounts so that the funds aren’t commingled.