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Garnishing Social Security

By Jennie L. Phipps · Bankrate.com
Monday, February 28, 2011
Posted: 5 pm ET

Here's an off-the-wall retirement planning wrinkle.

New rules take affect May 1 that make it much harder for creditors to garnish Social Security, veterans pensions, Supplemental Security Income and Social Security Disability from recipients who owe them money.

The new U.S. Treasury rule requires all banks to determine whether an account contains these protected funds. If an account contains protected funds, the bank is required to protect two months' of benefit payments from garnishment. Protection of more than two months' of benefit payments requires additional court filings and in practice, makes these funds immune from seizure by creditors, says Margot Saunders, an attorney for the National Consumer Law Center.

It works like this. You fail to pay your car payment and the car dealer comes and takes the car, then he sues and gets a judgment against you for the remainder of what you owe him. He goes to the bank and attempts to garnish your money. Under the new rule, the creditor can pick any day he wants for the garnishment and the bank must respond by looking at your account for the previous 60 days. Let's say you received a $1,100 Social Security payment one month and another $1,100 Social Security payment the next month. That $2,200 is protected. If there is any other money above and beyond that amount that has been deposited in the account during that period and is still sitting there, the creditor gets it. If there is no other money, the creditor is out of luck. He gets bupkis.

There are two exceptions, Saunders says: money you owe Uncle Sam and money you owe in child support. If you have these kind of debts, an attorney or the IRS can petition Social Security directly and collect.

If a debt collector begs to differ, Saunders points them to this statement on the Social Security website. She says garnishment of Social Security has always been against the law, but creditors have found ways around it. This change in the rule should eliminate those loopholes. On the other hand, if you fear you might find yourself in this kind of debt-collection dilemma during your retirement, the best way to protect yourself is to have your Social Security check deposited into an account that you don't use for anything else.

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22 Comments
Terri Knight
April 25, 2011 at 7:37 pm

I understand that Mary. I have seen many people fall by no actions of their control. I have seen my share of bad luck too.
The fact that lawyers can garnish you without letting you know until after the fact. If the bill is not yours, well then after you pay for it, you can find the person it belongs to and sue them. They would know a lawyer. Of course! Oh and after the garnishment goes through and your check is gone, you have no recourse. This is the strangest law, why??? The lawyers got tired of looking for folks but this is nuts!!!!

Mary Bishop
April 21, 2011 at 3:33 am

I have always been scrupulously honest on my taxes, and in life in general (except when I was a kid and wanted to get out of something...). But I had to leave my career, after 25 years in IT, in 1998 and live on SSDI. My income dropped by 2/3's. I lost my house and had to declare bankruptcy--a complete humiliation. I had always prided myself on the "fact" that I would never do such things. Well, guess what? Sometimes you just gotta. When you finally truly understand how it is that people sometimes choose to go live under a bridge, in a cardboard box if they can find one big enough, then you can make comments and judgements about people who have to live hand to mouth, every day, every week, every month, every year. Until then, keep your negative opinions to yourselves. You know who you are.