Can Your Social Security Benefits be Garnished to Pay a Debt?
Debtors can garnish your paycheck or your bank account in order to collect on an unpaid debt, but can they garnish government benefits?
If you can’t pay back a personal loan you’ve borrowed, then you’ll probably be sent to collections, and you may even get taken to court. If the judge rules in favor of the lender, they will likely garnish your wages. This means that money is automatically taken out of your paycheck to pay back your debtor.
But some people who borrow money don’t have paychecks. Instead, they draw their income from benefits, most often Social Security. Can a lender garnish your Social Security benefits in the same way that they can garnish a paycheck? Read on to find out.
How do wage and bank account garnishments work?
Once a borrower has defaulted on a debt that they have borrowed, they will either be contacted by the lender itself or the debt will be sold to a third-party debt collector. The lender or debt collector will then attempt to retrieve the money that is owed on the loan or credit card in question. If the borrower refuses to or cannot comply, the creditor will then take them to court.
Once in court, the creditor will seek a judgment against the borrower and a garnishment in order to retrieve what they are owed. A garnishment means that a certain amount of money is deducted directly from the borrower’s paycheck and used to pay back the debt, plus any additional legal or court fees that the judge sees fit to include.
The creditor can also seek a garnishment directly from the borrower’s bank account—again, to be withdrawn at regular intervals. There are state and federal laws in place that limit the amount of money that can be garnished. After all, the borrower still needs enough money to live on.
Social Security benefits are mostly exempt from garnishment.
According to the Consumer Financial Protection Bureau (CFPB), “A U.S. Department of Treasury rule requires banks to automatically protect certain federal benefits from being frozen or garnished if they are direct deposited into your account.”
Chief among these benefits is Social Security. Other protected benefits include veterans benefits, Supplemental Security Income, unemployment and sickness benefits, and retirement benefits for civil service members and other federal employees.
However, there are limits to these protections. Banks are required to protect two months worth of these benefits and to let you keep that money. So this means that if you have more than two month’s worth of benefits in your account, the bank can garnish or freeze the surplus.
These same protections and limitations hold true if you receive your benefits using a prepaid debit card instead of direct deposit. Lenders cannot get a court judgment to have these benefits garnished automatically from your card, but they are able to access funds in excess of two months worth of benefits.
Here are the exceptions where your benefits can be garnished.
While the government protects your benefits from private creditors, they aren’t so inclined to protect you when the creditor you owe is them. Social Security benefits can be garnished when the debt is owed to the government or the debt is from a government-mandated payment.
If you owe back taxes to the IRS, for example, that debt can result in a garnishment on your Social Security benefits. The same can be done for any outstanding federal student loans that you have failed to repay. Child and spousal support can also result in your Social Security being garnished.
The other major exception might seem a little odd: Social Security benefits that you receive by check and then deposit in your bank account can be garnished. In cases like these, banks do not have to maintain the two-month buffer and are free to freeze or garnish those funds.
This doesn’t mean that you can’t go to court and have the freeze or garnishment overturned by proving that these funds came from protected federal benefits. It just means that, well, you’ll have to go to court and prove that these funds came from protected federal benefits. If you don’t have your Social Security benefits set up as a direct deposit, we recommend that you do that.
Make sure you have proof that your funds come from Social Security.
Since income from Social Security benefits is protected from garnishment, you’ll want to do everything in your power to make sure that both the debt collector and the judge hearing your case know that these funds are protected.
This is where direct deposit comes in handy and where paper checks can trip you up. If your paycheck gets garnished or your bank accounts get frozen, you’ll receive a notice of garnishment, and your case will be overseen by a judge. According to the CFPB:
“It is very important for the judge to know that your money comes from Social Security, SSI, VA, or other federal or state benefits before the judge decides whether your money should be turned over to the debt collector. You should notify the court, the bank, and the person/business that is garnishing your account immediately in writing …”
The CFPB also recommends that you seek legal counsel and that, if you are a drawing on Social Security in your retirement, you may qualify for free legal help. They recommend that you contact The Center for Elder Rights Advocacy by calling (866) 949-2372 or by visiting Legalhotlines.org.
In general, it’s best to prepare for the worst with situations like these. Just because your benefits are protected from garnishment doesn’t mean your creditor will give up without a fight.
If you need to borrow money, it’s best to avoid predatory payday loans, title loans, cash advances, and other types of short-term no credit check loans. If you have lousy credit and need to borrow money, do your research before taking out a bad credit loan—and keep an eye out for more affordable installment loans. To learn more about how you keep yourself safe from predatory lenders, debt collectors, and scammers from taking advantage of you, check out these related posts and articles from OppLoans:
- What Debt Collectors Can and Can’t Do
- How to Protect Yourself from Payday Loan Call Scams
- Reverse Mortgages: How They Work and How to Shop For One Safely