Are Social Security Retirement Benefits Subject to Collections?

Millions of American rely on their Social Security checks for income in retirement. While these benefits are not intended to provide for all one’s needs in retirement, for many Americans, benefits checks indeed make up the bulk of retirement income. That’s why talk of the Social Security trust fund becoming insolvent, or talk of privatizing the system and subjecting one’s retirement income to the whims of the stock markets, is so frightening.

Other scenarios may jeopardize our financial stability. What if we become personally insolvent and face bankruptcy? Or what if we find ourselves in legal difficulty? Are Social Security retirement benefits subject to collections or judgments?

The Federal Trade Commission, and the Fair Debt Collection Practices Act, stipulate that certain benefits are not subject to garnishment. These include Social Security benefits, disability benefits, Supplemental Security Income (SSI) benefits, veteran’s benefits, civil service and foreign service retirement and disability benefits, military annuities and survivor’s benefits, and various other government-provided benefits.

However, if you have other sources of income — whether from employment (as documented by a W-2 form), income from part-time work, or income from other sources such as rents, interest, or dividends — these amounts can indeed be garnished.

Generally, a creditor or debt collection agency can sue you to collect. If they are successful, a court will enter a judgment against you, stating the amount you owe and establishing a garnishment order against you. A third party — such as the bank where you have an account — then becomes obligated according to the garnishment order to turn over funds from your account directly to the creditor or collection agency.

To preserve your rights, don’t ignore any court orders against you; you may need to seek representation of your own. And don’t comingle your funds. If you have income that is exempt from garnishment (from Social Security, for instance), as well as income that can legally be garnished by a debt collector, then keep separate bank accounts for each category of income. You should be able to demonstrate that all deposits into a particular account are from protected sources; this account will then be off-limits to garnishment.

You must take positive action to protect that part of your income that is protected from garnishment — your Social Security income, for instance. A judge must then rule on your protected income. You might even consider stopping direct deposits of Social Security or other protected benefits into a bank account; have the relevant agency mail you checks instead, and cash the checks.

Note that the “hands-off” policy doesn’t apply to collection orders from all sources. The federal government itself, of course, retains the right to garnish all sources of income, including Social Security, if you owe back taxes. Your Social Security or disability income may also be subject to garnishment to pay delinquent alimony, child support, or student loans. If you are having trouble keeping up with payments on such obligations, then consult with a debt management specialist to get yourself back on track. Don’t wait until a creditor — particularly if it’s the U.S. government itself — initiates an action against you. It costs your creditors money to take legal action against you, too, so they will most likely be open to working out an arrangement with you outside the courts.

As a final measure, you might consider declaring bankruptcy. In any bankruptcy settlement — whether a Chapter 13 debt restructuring plan or a Chapter 7 asset liquidation — your Social Security or disability benefits are protected. This income will be considered by the bankruptcy court, and set aside as exempt from collection.

If you are in financial or legal difficulty and fear that your Social Security income is in jeopardy, don’t wait for the court to come to you with a garnishment order. Be proactive; seek debt counseling, offer to work out an arrangement with your creditors to eliminate your debt, and have your Social Security checks deposited into a special designated account, or simply mailed to you and cashed. If you take these measures, you won’t be left destitute.