When you start receiving Social Security Disability Insurance benefits, you’ll need to choose how the government sends money to you. If you elect direct deposit to a bank account or to a prepaid card, federal laws protect your benefits from most garnishments. When a debt collector presents a claim against you, your financial institution must follow specific federal regulations. However, if you receive your SSDI by check, then deposit the money at your bank, you don’t get the same protections, says Consumer Finance.
Direct Deposit Protections
A U.S. Treasury rule automatically protects several kinds of federal government benefits, including Social Security Disability Insurance payments, from most garnishments. When a creditor receives a court judgment against you for an outstanding debt, they will ask your bank to give them money in your account or on your prepaid card. Your bank can’t release direct-deposited funds unless the balance in your account is more than two months of your benefit amount.
Exempted Direct Deposit Benefits Amounts
Even under these rules, your bank or prepaid card’s financial institution can release some of your funds to your creditor. If your account balance exceeds the allowance of two months, the creditor can claim the excess amount.
Your bank will freeze the excess account balance, but you continue to have access to spend the protected two months of benefit payments. The creditor’s garnishment will continue until they receive the full judgment amount or your balance falls below the amount equal to two months of benefits.
Other SSDI Benefits Deposits
The U.S. Treasury rules do not automatically offer protection from garnishment actions for SSDI funds that you receive by check, then deposit into your bank account. When a creditor comes calling at your bank, the bank must freeze the funds in your account and send you a notice of garnishment. However, you can stop the garnishment by proving to the judgment court that SSDI benefits are your only source of income.
The garnishment notice from your bank will have details about how to appeal the garnishment. You must inform the bank, the creditor and the court in writing that the funds in your account are federal benefits. You must also request that the court provide you an exemption from the judgment. You might need help from a lawyer to be successful. In the meantime, your bank must continue to freeze all the funds in your account.
Tax, Student Loan and Child Support Garnishment
Your garnishment protections do not apply to garnishment for debt you owe to most federal agencies. Your child support obligations don’t qualify for the SSDI exemption from garnishment either. However, unlike other judgments, the government sets limits on the maximum garnishment allowed for each type of debt, according to AARP.
Unpaid child support or alimony could cost you 50 percent of your SSDI benefits. An arrears of 12 weeks or more will increase this amount by five percent. Under some court-ordered arrangements, you could lose 60 percent of your SSDI monthly payments.
The government has the right to collect federal student loans from SSDI. The IRS also garnishes SSDI payments for unpaid taxes. The maximum amount for student loans and for IRS debts is 15 percent of your benefits. However, laws limit student loan debt garnishment. You must still have at least $750 in monthly benefits left in your account after the bank satisfies the garnishment.
- Consumer Finance: Can a Debt Collector Take My Social Security Or VA Benefits?
- AARP: Can Social Security Be Garnished?
- Consumer Financial Protection Bureau. "What Is a Garnishment?" Accessed June 8, 2020.
- Federal Student Aid. "Collections." Accessed June 8, 2020.
- Nolo. "How to Object to a Wage Garnishment." Accessed June 8, 2020.
- Federal Trade Commission. "Debt Collection FAQs." Accessed June 8, 2020.
- Federal Trade Commission. "Settling Credit Card Debt." Accessed June 8, 2020.
- Justia. "Wage Garnishment and Bankruptcy." Accessed June 8, 2020.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.