Social Security benefits are a crucial lifeline for many retirees and disabled Americans. These payments provide essential income for the millions of people who depend on them to cover basic living expenses, like rent, groceries and medical bills. And, given how vital Social Security is for many people, the idea of losing a portion of it to debt collectors can be alarming.
Still, its a real concern for many of those who are also struggling to manage their debt. After all, high credit card balances and other types of debt continue to burden Americans of all ages in todays tough economy, and wage garnishment is a tool debt collectors can use in certain cases to recoup delinquent debt. The relationship between debt collection and Social Security is complicated, though, and it does not function the way that the relationship between regular income and debt collection does.
So, if youre receiving Social Security and owe money to debt collectors, should you be worried about your benefits being garnished? Below, well break down what you should know.
Having too much credit card debt can be extremely stressful, especially if you rely on Social Security benefits. You may worry about debt collectors garnishing your Social Security payments. I’ll explain whether Social Security can be garnished for credit card debt.
Social Security Benefits Are Generally Protected
The good news is that Social Security retirement benefits are protected from garnishment by credit card companies and other commercial creditors This protection comes from the federal Consumer Credit Protection Act (CCPA)
Under the CCPA, Social Security income that is directly deposited into your bank account or loaded onto a prepaid card cannot be garnished by credit card companies, medical providers, or other commercial creditors to pay debts you owe them. This is true even if they take legal action and get a court judgment against you.
The same protection applies to other federal benefits if you receive them via direct deposit, including:
- Supplemental Security Income (SSI)
- Veterans benefits
- Civil service retirement benefits
- Federal employee retirement benefits
- Military retirement pay
- Railroad retirement benefits
So you can breathe easy knowing creditors can’t seize your Social Security to pay credit card bills.
Exceptions: When Social Security Can Be Garnished
While Social Security can’t be garnished for credit card debt there are some exceptions when it can be garnished
1. Government Debts
The U.S. Department of Treasury can garnish Social Security to collect unpaid federal debts through its Treasury Offset Program. This includes:
- Unpaid federal income taxes
- Overdue federal student loans
- Other debts owed to the federal government, such as overpayments to federal agencies
In this situation, the government can take 15% of your monthly Social Security benefit, or keep $750 per month, whichever allows you to retain more
2. Child Support and Alimony
Social Security benefits can also be garnished to pay overdue child support or alimony. Up to 50-60% can be taken to cover these court-ordered obligations.
3. State Tax Debt
Some states allow Social Security garnishment to collect unpaid state income taxes. However, federal law protects a minimum benefit amount from state garnishment.
The only federal benefit completely protected from all garnishment is Supplemental Security Income (SSI).
Other Tactics Creditors Use
While credit card companies can’t garnish Social Security directly, they have other ways to pressure you to pay:
- Selling debt to collection agencies – After 6 months of nonpayment, creditors often sell debt to collectors.
- Putting a lien on your home – They can get a court judgment to put a lien on your property.
- Seizing non-Social Security funds – Creditors can seize other money from your bank account above the protected amount.
- Taking tax refunds – The IRS can seize refunds to pay federal debts you owe.
What to Do if You’re Facing Garnishment
If you rely on Social Security but have unmanageable credit card debt, act quickly to resolve it and protect yourself. Here are some smart options:
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Credit counseling – Meet with a nonprofit credit counselor to go over your budget and debt relief options. Many provide free help.
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Debt management plan – Nonprofit agencies can negotiate lower interest rates and fixed payments through a DMP.
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Debt settlement – This involves negotiating lump sum payoffs for less than you owe. But fees apply and it hurts your credit.
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Bankruptcy – As a last resort, Chapter 7 bankruptcy stops garnishment and wipes out eligible debt. Chapter 13 sets up a 3-5 year repayment plan.
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Budgeting – Creating and sticking to a budget is key to managing debt. Know exactly where your money goes.
The bottom line is Social Security benefits are generally protected from creditor garnishment. But if you’re facing debt collectors, don’t ignore the problem. Seek help to resolve debts and protect your retirement income.
Can a debt collector garnish your Social Security benefits?
When it comes to whether a debt collector can garnish your Social Security benefits, the short answer is that it depends on who the debt is owed to.
Federal law provides strong protections for Social Security benefits against most private debt collectors. Under the Social Security Act, these benefits are generally exempt from garnishment and bank levies from private creditors. This means that credit card companies, medical debt collectors and personal loan providers typically cannot legally seize your Social Security funds to satisfy unpaid debts.
However, there are significant exceptions to these protections. The federal government can and does garnish Social Security benefits for certain types of federal debts. These include:
- Federal student loans in default
- Unpaid federal taxes
- Child support and alimony obligations
- Certain other federal debts
When garnishment is permitted, the government must still leave you with a minimum of $750 per month or $9,000 annually in most cases. This provision ensures that recipients retain at least some income for basic living expenses, regardless of their debt situation.
Its worth noting that Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) receive the same protections as regular Social Security retirement benefits. However, SSI recipients typically have even fewer assets, making them especially vulnerable when facing debt collection.
Your bank is also required to protect up to two months worth of federal benefits deposited directly into your account. This “lookback period” means that when a bank receives a garnishment order, it must review your account history and protect the equivalent of two months of benefits from being frozen or seized.
How to get rid of debt in collection
While Social Security benefits may be protected in most cases, avoiding communication with debt collectors can still lead to legal trouble. Luckily, there are strategies you can use to help resolve your situation, including:
Debt settlement: This approach, which is also commonly referred to as debt forgiveness, involves negotiating with creditors to pay a lump sum thats less than the full amount owed. Many creditors will accept 30% to 50% less than the original debt, especially if the account has been delinquent for some time.
Debt management: Credit counseling agencies can help you establish a debt management plan where you make a single monthly payment to the agency, which then distributes funds to your creditors. These plans often secure lower interest rates and waived fees, making repayment more manageable on a fixed income.
Hardship programs: Many creditors offer hardship programs for those facing financial difficulties, including seniors and disabled individuals. These programs may reduce interest rates, waive fees, or even forgive portions of the debt based on your circumstances. So, contacting your creditors directly to inquire about available hardship options can be a smart move if this is the type of debt youre dealing with.
Bankruptcy protection: For those with overwhelming debt, filing for bankruptcy may provide relief. Chapter 7 bankruptcy can eliminate most unsecured debts within a few months, while Chapter 13 creates a repayment plan over several years. Social Security income is not counted in the means test for Chapter 7 qualification, which can make this option more accessible for benefit recipients.
If you rely on Social Security benefits, you generally dont have to worry about private debt collectors garnishing your income. However, government agencies can still deduct money for certain debts, such as taxes and child support. Its still important to try and get rid of your debt issues, however, as you could face other repercussions related to your unpaid debt. Fortunately, options such as debt settlement, consolidation or credit counseling can provide a path forward.
Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
Can They Garnish Social Security For Credit Card Debt? – CountyOffice.org
FAQ
Can a person on Social Security be sued for credit card debt?
Most creditors and debt collectors cannot seize your Social Security benefits. Generally, benefits from Social Security received via direct deposit or in a prepaid card are safe from garnishment. This protection applies even if a company sues you, you lose the case, and a court enters a judgment against you.
How do I protect my Social Security from creditors?
How long can Social Security be garnished for credit card debt?
Under the Social Security Act, these benefits are generally exempt from garnishment and bank levies from private creditors. This means that credit card companies, medical debt collectors and personal loan providers typically cannot legally seize your Social Security funds to satisfy unpaid debts.
Why should seniors not worry about old debts?