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.

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

Federal income tax

If the creditor is the federal government, funds from Social Security benefits can be withheld. “The IRS doesn’t need a court order to do this, either,” says Tayne.

The Department of the Treasury can simply withhold the Social Security benefits in order to collect past due federal taxes. The government may take a variety of approaches to doing this, including issuing a Notice of Levy in order to collect overdue federal taxes.

Yet another approach to collection is what’s known as the Federal Payment Levy Program. In this scenario, the Department of Treasury may simply withhold as much as 15 percent of your monthly benefits. This would be done until the debt is paid in full.

In addition, you are unable to appeal any reductions in your Social Security benefit payments.

Federal student loans

Similar to federal income taxes, the government can simply withhold Social Security benefits if you still have federal student loan debt remaining as you approach retirement. Once again, this can take place because the federal government is the creditor.

As much as 15 percent of your benefits may be garnished. However, before this takes place, the loan servicer must provide you with 30 days notice of the impending action.

If this happens to you, try contacting the loan servicer directly to negotiate modified loan payments in order to avoid garnishment. You could also try to obtain a financial hardship exemption. This would be done through the Department of Education and requires completing a Request to Stop or Reduce Offset of Social Security Benefits form.

Delinquent child support and spousal support

The Department of Treasury can also opt to withhold Social Security benefits in order to enforce an unmet legal obligation to pay child support, alimony or restitution. In such cases, the federal government may garnish your current and continuing monthly benefits.

“If you owe child support, the government can take anywhere from 50% to 65% of your Social Security benefits,” says Tayne.

Similar to unpaid federal tax debts, individuals are not given the opportunity to appeal to Social Security for implementing garnishment orders. If you disagree with any garnishment action taken by the government, your best course of action is to contact an attorney.

Even under the exceptions above, 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.

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