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Can creditors take your Social Security?

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Most people don’t borrow money with the intention of not paying it back. However, sometimes unfortunate circumstances, like job loss or illness, can make it difficult to keep up with your previous financial commitments. Unfortunately, defaulted debts can lead to a host of problems, including credit damage, lawsuits and sometimes even wage garnishment. But can a creditor take your Social Security if they’re collecting on past-due debts?

In general, the answer is no, creditors and debt collectors cannot seize your Social Security benefits. Even if the creditor wins a court judgment against you for the outstanding debt, Social Security benefits are considered exempt from garnishment, says debt settlement attorney Leslie Tayne, founder of Tayne Law Group. However, there are certain types of debt that can be taken from your Social Security benefits such as delinquent taxes, alimony, child support and student loans owed to the Department of Education.

Protected Social Security benefits

Most creditors and debt collectors cannot seize your Social Security benefits, as long as you receive them via direct deposit to your bank account. If you receive your benefits on a prepaid card, these funds are generally safe as well. This protection applies even if a company sues you, you lose the case and a court enters a judgment against you.

The following benefits are protected from garnishment and bank levies thanks to federal law:

  • Social Security benefits
  • Supplemental Social Security Income (SSI)
  • Veterans benefits
  • Federal Employee Retirement System
  • Civil Service Retirement System
  • Federal Railroad Retirement, Unemployment and Sickness Benefits

Third-party debt collectors cannot even threaten to take your Social Security benefits if they know the benefits are your only source of income. If a collection agency threatens to take your Social Security income, it may be guilty of violating the Fair Debt Collection Practices Act.

Exceptions to protected Social Security benefits

In limited cases, your Social Security income may not be eligible for protection. Additionally, creditors and collection agencies may have other ways to try to collect the money you owe, even if they’re not allowed to take your benefits.

Exceptions to the rule

Your Social Security benefits might be at risk if you owe any of the following:

  • Federal income tax
  • Federal student loans
  • Delinquent child support and/or spousal support

“If the creditor is the federal government, funds from Social Security benefits can be withheld,” says Tayne. “In this case, 15% of your benefits can be taken to repay back taxes. The IRS doesn’t need a court order to do this, either. If you owe child support, the government can take anywhere from 50% to 65% of your Social Security benefits.”

If you receive your benefits via paper check, your Social Security income might be vulnerable as well.

Even under the exceptions above, Supplemental Security Income (SSI) is off-limits for garnishment or a bank levy unless you were overpaid and the Social Security Administration is correcting an error.

Other ways creditors can collect payments

If Social Security benefits are your only source of income, private creditors and debt collectors have limited options to get their money. They can’t garnish your Social Security income and they can’t levy your bank account as long as it only contains Social Security income that was put there via direct deposit.

But if you owe a substantial amount of debt, companies may not give up easily on attempting to collect. Just because Social Security makes up your only source of income doesn’t mean that creditors and debt collectors don’t have other means to try to recuperate the money you owe them.

Companies may opt to take other actions if they can’t access your Social Security funds to collect a debt. These actions might include:

  1. Reporting negative information to the credit bureaus. Late payments, charge-offs and other derogatory credit information may lower your credit scores. This could make it difficult to qualify for new financing or services in the future.
  2. Selling your account to a collection agency. Collection accounts may result in additional credit damage. Plus, even if your credit scores are still in decent shape, some lenders may require you to pay off outstanding collection accounts before you can qualify for new financing.
  3. Placing a lien on your house or other real property. The company that owns your unpaid debt may sue you in court. If you lose, the creditor could be granted a judgment that can be used to place a lien against your home or other real property. A lien won’t force you to sell your property, but if and when the property is sold, even by your heirs, the lien must be satisfied at the sale. “Liens are a way of tying up assets and where local laws permit,” says Michael Sullivan, a personal financial consultant for the non-profit financial counseling agency Take Charge America. “A creditor may file a lien on property. That makes it difficult for a consumer to sell or refinance the property.”
  4. Seeking a court order to seize non-Social Security funds from your bank account. If your Social Security benefits are in a bank account where other money is held, a creditor or debt collector might use a court judgment to try to get the other money in your account. It would then be up to you to prove that the Social Security benefits in the account cannot be taken. Your bank or credit union is required to protect two months’ worth of benefits (if you receive them via direct deposit).
  5. Seizing your tax refund. Federal and state government agencies may be able to seize your tax refund if you owe an unpaid debt. Once you deposit your tax refund into your bank account, private creditors might be able to take the funds as well, depending on your state of residence. “Tax refunds can be confiscated by the federal government. Usually, that would be for debts owed to the federal government but other courts can request the funds for child support, spousal support or debts owed to the state,” says Sullivan.

What to do if you are dealing with creditors

If you’re in a situation where you have more financial commitments than you have money to pay them, it can be tempting to ignore the problem. After all, you can’t afford the debt. Putting the issue out of mind may feel like a temporary solution.

But ignoring your debt is usually a mistake. Defaulted debts might snowball into a bigger issue, even if your Social Security benefits aren’t at risk. Instead of pretending that your debt problem doesn’t exist, here are some better alternatives to consider.

Actions you can take if you’re in over your head with debt

  • Look at your budget. Many people on fixed incomes are used to managing their money carefully. But even if you’re already using a budget, it’s still wise to take a look at where you’re spending your money each month. You might find areas where you can cut or reduce your spending. Any extra funds you free up can go toward financial goals like paying down debt or building an emergency fund.
  • Work with a credit counselor. If you can realistically afford to make some payments on what you owe, you might consider credit counseling. A qualified, nonprofit credit counseling organization can review your financial situation. A credit counselor may be able to set up a debt management plan, or DMP, with your creditors. A DMP consolidates eligible debts you wish to include into a single, monthly payment that is more affordable. Your credit counselor may be also able to reduce your interest rate and get creditors to waive fees as part of the arrangement. Most DMPs take three to five years to complete and may come with setup fees and monthly administration fees from the credit counseling organization.
  • File for bankruptcy protection from your creditors. When you live on a fixed income, budget cuts or credit counseling may not be enough to solve your debt problems. Filing for bankruptcy may help you to protect your assets when you can’t afford to pay your debts. Of course, bankruptcy does come with consequences such as credit damage. It may also be difficult to qualify for certain types of new credit post-bankruptcy. Some debts, like past-due taxes and federal student loans, won’t be eligible to include in a bankruptcy filing. For these reasons, bankruptcy is usually a last-resort option.

Next steps

If you can’t afford to pay your debts, your Social Security benefits are probably safe. However, that’s not always the case. Before you decide not to pay a debt, you may want to talk to an attorney about potential consequences you could face.

Frequently asked questions

What types of debt can impact my Social Security benefits?

? Debt owed to the federal government and certain other types of debt can impact your Social Security benefits. “Consumers who fail to repay student loans or taxes or penalties due the federal government can find their Social Security income withheld,” says Sullivan. “In addition, with a court order, child or spousal support payments can also be deducted from Social Security.”

Can private debt collectors garnish my Social Security benefits?

? No. The Social Security Act (section 207) generally prohibits collectors of private debt from garnishing or otherwise taking Social Security benefits, says Sullivan.

Can you voluntarily have some of your Social Security benefits withheld to pay debt?

? In the case of taxes owed to the federal government, you can ask to have a portion of your monthly Social Security benefits withheld to pay the Internal Revenue Service.

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Written by
Mary Wisniewski
Banking editor
Mary Wisniewski is a banking editor for Bankrate. She oversees editorial coverage of savings and mobile banking articles as well as personal finance courses.  
Edited by
Loans Editor, Former Insurance Editor