Debt Collection and Protections for Federal Benefits

November 4, 2015

The following are frequently asked questions (and answers) about debt collection and protections for federal benefits. The answers have been provided by an attorney in SMRLS' Senior Unit. More information about the Senior Law Project, which provides free legal assistance to low-income elderly individuals living in Washington, Dakota, Ramsey, Carver and Scott counties, can be found at the bottom of this article. 


1. Can a creditor take my Social Security or other federal benefits?

Social Security and other federal benefits are protected from most creditors. These benefits are “exempt” from debt collection, which means they cannot be taken from you to collect most debts.

2. Does this mean I cannot be sued if I receive Social Security?

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No, it does not. A creditor can sue you, and will probably get a Judgment (a court order saying you owe the debt) against you unless you have a legal defense to the debt. The inability to pay a debt is not a legal defense. However, you might be “judgment proof” if your only income is from Social Security or another protected source. This means that you do not have any income or assets that a creditor could take from you against your will, even if a creditor sues you and wins a Judgment against you.  

3. Can my Social Security benefits be garnished?

The answer in most cases is “no”. Most creditors cannot go to the Social Security Administration (SSA) and ask them to turn over your benefits to them because you owe them money. However, certain debts can be garnished and taken from your Social Security benefits at SSA. The law allows SSA to take your Social Security benefits to pay unpaid child support and other debts that are owed to the federal government. Federal debts include student loans, federal tax debts and overpayments under food support programs (food stamps or SNAP benefits.)  You must get a warning from the U.S. Treasurer before this happens. Congress had to approve a law that specifically says that your Social Security benefits are not protected from these types of debts to allow the garnishment by SSA.

4. Can my Social Security benefits be taken once they’ve been put into my bank account?

Federal law automatically protects Social Security and other federal benefits if certain conditions apply. Your bank account cannot be frozen if all of these things are true:

  1. You get Social Security or other federal benefits;
  2. These federal benefits are put into your account by direct deposit; and
  3. The account balance is less than twice your monthly benefit rate. For example, if you get $1,000 a month from Social Security then $2,000 would be automatically protected ($1,000 x 2 months = $2,000).

5. What types of benefits are protected under this law?

The law applies to federal benefits, which include: Social Security; Supplemental Security Income (SSI); Railroad Retirement benefits; Veteran’s benefits; Civil Service Retirement Systems benefits and Federal Employee Retirement Systems benefits.

6. Is this protection automatic?

Yes, as long as you receive a federal benefit that is put into the account by direct deposit and the amount in the account is less than two times your monthly benefit rate, the bank cannot freeze your funds. In addition, the bank cannot charge you a fee to protect this amount of money for you.  

7. Does this automatic protection apply to all of my bank accounts?

No, the automatic protection only applies to an account that has federal funds in it if they are put into the account by direct deposit. It will not protect the federal funds if you move them to a different account. For example, if you put your Social Security check into your checking account by direct deposit and then transfer funds to your savings account, the automatic protection only applies to the checking account. The bank could freeze your savings account. It also will not automatically protect your money if you do not use direct deposit.

8. Does this automatic protection apply to all of the money in the protected account?

No, it only applies to an amount that is equal to 2 times your federal benefit rate. Thus, if you get $1,000 a month from Social Security, the bank will only automatically protect $2,000. Amounts that exceed the $2,000 limit can be frozen.

9. Can I protect federal funds that are moved to a different account or that exceed the protected amount mentioned above?

Yes, federal benefits are exempt (protected) from most creditors. There is no time limit on how long the money is protected, and no limit on the amount that is protected if you can trace it back to the original, protected source. Thus, if you move your Social Security to another account, or have more than 2 times your monthly benefit in your account when the account is attached, you can still protect your money if you can prove it is from Social Security.

You have the “burden of proof,” which means that you have to provide the documentation that proves the money is exempt because it comes from Social Security or another protected source. You can do this using bank statements or withdrawal and deposit slips to follow the money by creating a paper trail. For example, if your Social Security check of $1,000 is put into your checking account by direct deposit and you set up an automatic transfer of $200 into your savings account every month, you can protect the money in your savings account by proving it came from your Social Security check. To do that, you would need statements from your checking account and your savings account to show the money transferred to your savings account came from the Social Security check you deposited in your checking account.

 The Senior Law Project provides free legal assistance to low-income elderly individuals living in Washington, Dakota, Ramsey, Carver and Scott counties.  Residents of these counties may reach the project at (651) 222-4731 Monday through Friday between the hours of 9:00 A.M. and noon and 1:00 P.M. and 3:00 P.M.

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