Garnishments and bank levies allow creditors to take money from you to pay a debt. Federal laws and the laws in most states provide special protections against these proceedings for Social Security disability benefits and other federal benefits. Certain types of debts, though, don’t qualify for these protections. If your benefits don’t qualify for any other protection, bankruptcy may offer at least temporary relief from collection efforts.
If you don’t pay a debt, the creditor could sue you and get a judgment against you. A judgment is a court document that says you owe a debt and orders you to pay it. When a creditor has a judgment, they have more options available to collect the debt, including garnishment and bank levy.
Federal laws — and may state laws — create special protections against garnishments and levies for Social Security disability income and other federal benefits. This article covers how garnishments and levies work, what protections are available, and what you need to do to use these protections.
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.
Garnishments and Levies Explained
In a 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 have a judgment against you. But a judgment isn’t required for some types of debt, such as unpaid child support or past-due taxes.
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Disability Benefits and Garnishment
Federal Social Security 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. Exceptions exist for certain kinds of debts, including:
Back taxes (past-due taxes): The federal Treasury Department can take up to 15% of your total benefit amount.
Delinquent child support or alimony: The maximum garnishment amount depends on your state law, but 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.
Disability Benefits and Bank Levies
SSDI benefits are protected from most garnishments and, in many cases, 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 are not protected from levies.
According to a Treasury Department rule, before your bank can levy funds from your account, it must first check whether any Social Security benefits have been directly deposited into that account in the past two months. If so, the bank must determine the “protected amount.” This amount is either the total of all direct deposits of federal benefit payments within the past two months or your current account balance, whichever is less.
Protection Under State Exemptions
If the benefits in your account don’t qualify for protection under the automatic protection rule, they might still qualify for protection under your state’s exemption laws. Every state has laws that protect certain kinds of property against garnishment or levy by creditors. Most states have exemption laws that offer some protection for SSDI benefits.
Protection under state-law exemptions isn’t automatic, though. If you receive notice of a bank levy, you must act quickly to notify the court that your account contains exempt benefits. You’ll need evidence to show that the money in your account qualifies for your state’s exemption. This is why it’s usually a good idea to keep your SSDI benefits in a separate account apart from your other money. A designated account makes it much easier to prove that all the money in the account qualifies for protection.
When Benefits Aren’t Protected
For some types of debts, neither your state’s exemption laws nor the automatic protection rule prevents your SSDI benefits from being levied in order to pay them. These include back taxes, delinquent child support or alimony payments, past-due criminal restitution payments, and other delinquent debts owed to federal agencies. In other words, if a creditor can garnish your SSDI benefits, that creditor can probably also levy benefits from your bank account.
Bankruptcy Can Offer Additional Protections
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 and 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.
Garnishments and bank levies are two common ways that creditors can collect debts from you. Most, but not all, creditors must sue you and get a judgment against you to utilize these collection methods. Federal and most state laws prevent creditors from garnishing your SSDI benefits. There are exceptions for certain kinds of debt, including domestic support obligations, criminal restitution, and debts owed to the government.
Automatic protections prevent creditors from levying SSDI benefits from your bank account in many situations. Even if your benefits don’t qualify for automatic protection, you can usually protect them under your state’s exemption laws. If your SSDI benefits aren’t eligible for any of these protections, you could still protect your benefits by filing bankruptcy.
- National Archive: Code of Federal Regulations. (n.d.). Code of Federal Regulations: Title 31, Subtitle B, Chapter II, Subchapter A, Part 212. National Archive: Code of Federal Regulations. Retrieved October 17, 2022, from https://www.ecfr.gov/current/title-31/subtitle-B/chapter-II/subchapter-A/part-212/