Can My Social Security Disability Benefits Be Garnished?

Can a Credit Card Company Sue You if You’re On Disability?

Yes, a credit card company can sue you if you’re on disability or receiving other federal benefits. Even though you can be sued for credit card debt, you may find that you are judgment-proof. 

If SSDI or other protected benefits are your only source of income, you may be considered judgment-proof. This means that, even if a creditor sues you and wins, they probably won’t be able to collect because you don’t have non-exempt income or assets they can take. But being judgment-proof doesn’t stop collection calls or letters, and you’ll still owe the debt plus any interest. If your financial situation changes, creditors may try to collect what you owe.

If a collection agency contacts you and you believe you’re judgment-proof, you can try sending them a judgment-proof cease and desist letter. This letter tells the debt collector that your money is protected and requests that they stop contacting you. Under the Fair Debt Collection Practices Act (FDCPA), debt collectors have to stop contacting you if you ask them to.

Are Disability Benefits Protected From Creditors?

Typically, yes, disability payments are protected from most creditors and debt collectors. There are some exceptions to this. For example, if you owe unpaid child support, alimony, federal taxes, or federal student loans, your benefits may be subject to garnishment.

The Consumer Financial Protection Bureau recommends using direct deposit to protect the following funds:

• Social Security benefits

• Supplemental Security Income (SSI) benefits

• Veterans benefits

• Civil service and federal retirement and disability benefits

• Servicemember pay

• Military annuities and survivor benefits

• Federal student aid

• Railroad retirement benefits

• Financial assistance from the Federal Emergency Management Agency (FEMA)

Another piece of common advice is to avoid combining your disability benefits with other sources of income. In other words, keep a dedicated bank account that only contains your protected benefits like Social Security or SSDI funds.

What Are Social Security Disability Benefits?

Social Security Disability Insurance (SSDI) benefits are payments from the Social Security Administration to qualified workers who can’t work because of disabilities. Your eligibility for SSDI benefits is based on your age and on how many years you paid into the Social Security system. The amount of benefits you receive depends on your pre-disability income.

In addition to SSDI payments, the Social Security Administration also distributes retirement benefits, survivors’ benefits, and Supplemental Security Income (SSI). You may receive other types of Social Security benefits in addition to SSDI. The rules that apply to garnishments and levies are generally the same for all types of Social Security benefits. But there are a few additional protections for SSI payments.

Understanding Garnishment and Bank Levies

If you don’t repay a debt, a creditor or debt collector can sue you. If the creditor wins, the court will issue judgment against you. This allows the creditor to pursue debt collection efforts like garnishment or a bank levy. 

In garnishment, the creditor takes a portion of your income before you receive it. Wage garnishments are the most common garnishment proceeding. But, garnishment can apply to other types of income, including SSDI benefits. In a bank levy, the creditor takes money you have already received out of your bank account.

Depending on your state, the words levy and garnishment could be used interchangeably to refer to either procedure. In this article, “garnishment” means taking part of your benefits before you receive them, while levy means taking benefits after you receive them. 

To take money from you using either levy or garnishment, a creditor must usually get a court order. But this isn’t required for some types of debt, such as unpaid child support or past-due taxes. 

When Can Your Disability Benefits Be Garnished?

Federal laws prohibit most private creditors, such as banks and credit card companies, from garnishing your SSDI benefits. These protections are also found in the laws of most states. 

There are exceptions for certain kinds of debts, including:

• Back taxes: The federal Treasury Department can take up to 15% of your total benefit amount if you owe past-due taxes.

• Delinquent child support or alimony: The maximum garnishment amount depends on your state law, but it can’t exceed 60% of your benefit amount (65% if your payments are more than 12 weeks behind).

• Past-due criminal restitution payments: The maximum garnishment amount is up to 25% of your total benefit, depending on your state’s laws.

• Other delinquent debts owed to federal agencies: This includes federal student loans. The amount garnished can be up to 15% of your benefit, as long as the portion you receive is still at least $750.

How Can You Protect Your Disability Benefits From Debt Collectors?

SSDI benefits are protected from most garnishments and bank levies. Sometimes, these protections are automatic. Other times, you must take action to protect your benefits from a bank levy. And in some cases, your SSDI benefits aren’t protected from levies. 

Sometimes Benefits Receive Automatic Protection

According to a Treasury Department rule, before a bank can levy money from your account, it must first check if any Social Security benefits have been deposited into the account in the last two months. If they have, the bank must calculate a "protected amount." This protected amount is either the total of all federal benefit deposits made in the past two months or your current account balance, whichever is lower. The bank can’t garnish this protected amount. This ensures that your Social Security benefits remain safe from creditors in most cases.

Your Benefits May Receive Protection Under State Exemptions

If your SSDI benefits aren't automatically protected under the Treasury rule, they might still be protected by your state's exemption laws. Every state has laws that shield certain property, including SSDI benefits, from creditors. However, this protection isn’t automatic. If you receive a notice of a bank levy, you must quickly inform the court that your account holds exempt benefits. You'll need to provide evidence showing that the funds in your account qualify for protection under state law. To make this easier, it's often a good idea to keep your SSDI benefits in a separate account from other money. This makes it simpler to prove that all the funds in that account are protected.

Sometimes Benefits Aren’t Protected

For certain types of debts, your SSDI benefits are not fully protected by state exemption laws or the automatic protection rule. This means creditors can levy your SSDI benefits to pay debts like back taxes, overdue child support or alimony, past-due criminal restitution, and other delinquent federal debts. If a creditor has the right to garnish your SSDI benefits directly, they can likely also take funds from your bank account to cover these debts. Knowing which debts can affect your SSDI benefits is important, so it may help to get legal advice and explore your options with a legal professional if you're concerned about garnishment.

How Bankruptcy Can Help Protect SSDI Benefits From Garnishment

If your SSDI benefits don’t qualify for any of the protections discussed above, bankruptcy could offer at least temporary protection from levy or garnishment. The Bankruptcy Code’s automatic stay provision immediately stops all collection actions. Many debts can be discharged, or eliminated, in bankruptcy. For debts that can’t be discharged, filing bankruptcy can still give you a chance to stop a levy or garnishment. This gives you time to work out a payment plan with the creditor.

If SSDI or other protected benefits are your only income source, you may be considered judgment-proof. Being judgment-proof means that your creditors don’t have a way to collect judgments against you. Being judgment-proof doesn’t mean that you’re protected from collection calls and notices. You still owe the debt — plus interest — and you could end up paying if your situation changes. 

Bankruptcy, on the other hand, may allow you to wipe out the debt for good. If you have limited income and assets, you’ll likely have no problem qualifying for bankruptcy and protecting your assets.

Let’s Summarize…

Creditors generally can’t garnish your Social Security Disability (SSDI) benefits, thanks to federal and state protections. In most cases, they have to sue you and win a judgment before attempting to collect unpaid debts. Even then, SSDI benefits are usually shielded from garnishment. However, certain debts—like child support, alimony, criminal restitution, and government debts—are exceptions. In those cases, your SSDI benefits can be garnished.

Automatic protections also stop creditors from taking SSDI funds from your bank account in most situations. If your benefits don’t qualify for automatic protection, state exemption laws may still protect them. And if all else fails, filing for bankruptcy could provide another way to safeguard your SSDI benefits from garnishment or levy.