Can Social Security Be Garnished?

If Social Security benefits make up all or some of your family's income, protecting these funds from creditors is important. In many cases, Social Security funds are off-limits to creditors, though there are some exceptions to this rule. To protect your family's interests, take action to address your debts before a creditor resorts to garnishment.

Garnishments and levies are debt collection tools. They allow creditors to seize funds directly from your employer or your bank. In a garnishment, a percentage or set amount of a payroll or benefits check is turned over to the creditor before you receive the balance. In a levy, all or some of your bank account balance is turned over to a creditor until the debt is repaid.

To garnish your paycheck or levy your bank account, most creditors must file a lawsuit against you, win the lawsuit, and then go back to court to ask the judge for permission to begin the garnishment or levy. However, some government agencies, such as the IRS, don't have to go to court. Instead, these agencies can notify you by letter of their plan to begin seizing your funds.

If some or all of your income is in the form of Social Security benefits, federal law may provide some protection from levies and garnishment. However, this protection can be limited by the type of debt you owe and the benefits you receive.

Social Security retirement and disability (SSDI) benefits are usually exempt from garnishment and levies, but some types of debt are excepted from this rule, including:

• Unpaid federal taxes
  
• Child or spousal support
  
• Victim restitution
  
• Non-tax debts to federal agencies
• Federal student loans 
  
• Defaulted home mortgages secured under a federal program

If your debt comes under one of these categories, your ability to protect your retirement or disability income may be very limited. The IRS, for example, can garnish 15 percent of your benefit amount, regardless of how little income you are left with.

For the most part, these exceptions to rules against the garnishment of benefits apply only to the IRS and other federal agencies. There are some exceptions, though. State court-ordered child support, alimony and restitution can be garnished from Social Security benefits.

One type of benefit that cannot be garnished or levied for any reason is Supplemental Security Income (SSI). This program is administered by the Social Security Administration, though it is funded through general tax revenue. It provides cash income to those who are elderly or disabled and have very few assets. SSI funds cannot be garnished by any agency or creditor for any reason.

If you learn that your exempt Social Security benefits have been seized by a creditor, take action as soon as possible. Let the SSA or your bank know that the funds are exempt. The Consumer Financial Protection Bureau also recommends getting legal help as soon as possible. If you can't afford a lawyer, the Legal Aid Society in your area may be able to provide low- or no-cost assistance.

In situations where your funds are not protected from garnishment, such as a federal tax debt or back child support, you may still be able to stop the garnishment or levy or reduce the amount being seized from your accounts. A lawyer may be able to help you reduce or eliminate a child support debt. If the issue is federal taxes, you can contact the IRS Taxpayer Advocate and begin to work out a resolution.

While it may be possible to stop or reverse the garnishment or levy of Social Security benefits, there are several things you can do either to prevent a garnishment or levy from happening or to shield your funds so they're never seized by a creditor:

• Don't ignore collection notices: Most creditors and government agencies only resort to garnishment or levies after they've made several attempts to collect a debt. By communicating with a creditor, you may be able to negotiate a settlement or payment arrangement.
• Sign up for direct deposit: Federal law specifically requires banks to protect your Social Security funds if they've been direct deposited into your account. The same is true if you receive your benefits via a prepaid debit card. If you are using paper checks to deposit your funds, you may have to go to court to get your money back after a levy.
• Get a separate bank account: It's harder for banks to determine whether funds are exempt when they are co-mingled nonexempt funds or with the money of a joint account holder. Arrange for your benefits to go to a separate account each month. 
  
• Bankruptcy: If your finances are dire, bankruptcy is one way to protect against or stop collection action, including levies and garnishments. This is a serious step and one that can have long-term consequences for you and your family. In addition, some debts, such as taxes, student loans and child support are difficult, if not impossible, to discharge in bankruptcy. Speak to an experienced lawyer to find out if bankruptcy can help.