“We need to get an immediate payment or we’ll garnish your Social Security benefit!”
The voicemail left for my client couldn’t have been more clear. After his wife died, he was left with thousands of dollars in medical bills. He’d tried to sort it all out, but trying to process his wife’s death and a mountain of medical bills at the same time was overwhelming. He planned to get to it, but for now, he just needed a minute to grieve.
The bill collectors didn’t wait, and it didn’t take long for the nasty calls to come rolling in. His last straw was the voicemail with the threat of taking away his Social Security benefit. I still remember the frustration, fear and anger in his voice when he asked me, “Can Social Security be garnished by debt collectors?”
Honestly, I had no idea of the answer. I was determined to find out, so I reached out to my friend John Ross, an elder law attorney at Ross & Shoalmire for a qualified answer.
He said, “Social Security Retirement benefits and Social Security Disability benefits can be garnished…but only in very limited circumstances. Unless the creditor is the federal government, or the debt is for alimony or child support, a Social Security benefit can’t be touched.”
This was good news for my client since medical bills certainly didn’t fall into any of those categories. However, it did make me curious enough to dig in and find out more about how Social Security is protected from debt collectors.
This is what I learned.
Social Security, Pensions, Disability, and VA benefits are protected from debt collectors
Lawmakers have passed laws to protect a senior’s income from debt collectors. This money is intended for a senior’s needs and can’t be taken from them. Federal law protects Social Security and almost all pensions under ERISA, a federal law passed in 1974. In addition, disability income in its various forms is protected under many different state laws. VA benefits are protected under federal law. Finally, federal law protects $217.50 net per week in wages from garnishment, more in some states.
The debt collector who threatened my client to take away his Social Security violated the Fair Debt Collection Practices Act. A debt collector cannot threaten to take an action that cannot be legally taken. This collector could be sued for what he did.
What about Social Security in a bank account?
Federal banking regulations were changed in 2011 to prevent a delay in access to a senior’s money in a bank account because of a garnishment. The rule instructed banks to automatically protect bank accounts into which Social Security or other federal benefits are deposited from garnishment. If a bank receives a writ of garnishment, they are required to examine the account and determine if Social Security or other federal funds were deposited into that account. They have 72 hours to examine the account but often do it immediately. Twice the amount of monthly federal funds deposited are protected, no matter where the funds came from that are in the account at the time of a garnishment. For example, if a person received $2000 in Social Security each month, then the bank automatically protects $4000 in that account, even if some of the money was from a gift, something a person sold, or whatever.
There is a special department in the bank that handles garnishments and knows these rules. Your local branch manager may have no idea about these rules. If there is a balance over that amount in the account from protected income like a pension or Social Security, it is still protected. A person would need to file a claim of exemption with the court that issued the garnishment showing the source of the exempt money.
Can the IRS garnish Social Security?
Although it’s not common, the IRS can garnish 15% of persons Social Security. They must provide a 60-day notice first. Lower-income seniors can apply for “non-collectible now” status with the IRS. A single person with income less than $2127 and a couple with income less than $2873 can qualify for non-collectible now status and pay nothing. A senior whose Social Security is garnished can contact the IRS, apply for ‘non-collectible now” status, and stop the garnishment. A state tax collector cannot garnish social security for past-due state taxes. Here is a link to an article providing more information about seniors and past-due taxes from HELPS, a national nonprofit law firm that assists lower-income seniors: https://helpsishere.org/taxes.html
Seniors with higher incomes can always make arrangements to pay taxes under $50,000 over five years or arrange for other payment to prevent the garnishment of Social Security. It is possible in certain circumstances to discharge taxes over three years old in bankruptcy.
Past due Student loans and Social Security
Again, it’s not common, but 15% of Social Security can be offset to pay defaulted public student loans. Private student loans cannot touch a person’s Social Security. The federal Income-Based Repayment Plan (IBR) is available to eliminate or reduce student loan payments based on a person’s income. Lower-income seniors could have their student loan payments eliminated or drastically lowered through IBR. Including stopping an ongoing garnishment of Social Security for a past-due student loan. Persons receiving SSD can qualify to have their student loan debt eliminated. Here is a link to an article from HELPS explaining more about how to qualify for an income based repayment plan: https://helpsishere.org/sloans.html
Child support, alimony
Social Security can be offset at higher rates for child support or alimony. SSI cannot be garnished for past-due child support.
Garnishment by other federal agencies
Federal agencies like the SBA, FmHA, VA, USDA and RDA can also offset 15% of a person’s Social Security. There is no statute of limitations and this offset can occur decades after the debt became due. A minimum of $750 in Social Security income is protected from garnishment, unchanged since 1996. Unlike IRS and student loan debt, there is no program available to stop a garnishment of Social Security for these other agency debts on account of low income or poverty. The garnishment can be stopped through bankruptcy. Once again these types of garnishments are rare, but Eric Olsen, Executive Director at HELPS tells me that an increasing number of seniors are faced with these garnishments.
What happened to my client’s bill collectors?
Since his income was protected he didn’t need to pay them. But what about the calls and demand letters? The federal Fair Debt Collection Practices Act provides that when a person sends what is called a “cease and desist letter” to a debt collector, contact from the collector by mail or phone must stop. He could file bankruptcy, but he didn’t want to do that and maybe couldn’t afford it.
I have since learned about HELPS Nonprofit Law Firm, a nationwide 501 (c) charitable law firm. HELPS represents seniors and disabled persons who receive protected income like Social Security as their attorney to receive debt collector communication. When persons enroll in HELPS, collectors can no longer call or send demands. They represent seniors ongoing. They also educate lower-income seniors how to maintain their financial independence. Stopping the garnishment of Social Security by the IRS and student loan debt is part of what they do. The cost for HELPS protection is minimal or free. They turn no qualified person away. You can learn more about HELPS here.
If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has a few thousand people who love to answer Social Security questions.
Before you leave, be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just ONE PAGE!
Also, if you haven’t already, you should join the 265,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.