Can My Social Security Benefit Be Garnished?

FT Contributor
A mans hand holding a pen that is pointing to a Social Security Benefits contract.
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You’ve worked for years, diligently paying into Social Security and Medicare with every paycheck. The day has finally come when you can collect your hard-earned retirement benefits but suddenly Uncle Sam has a nasty surprise: Your Social Security benefits will be reduced because you owe the government money.

Every year, the government garnishes more than $1 billion from Social Security beneficiaries to repay outstanding debts. Much of that money (about 70%) goes toward unpaid student loans, while the rest is for unpaid taxes. Because Social Security is such an important source of income for retirees, though, there are strict rules about who can garnish the benefits and when.

Only the federal government can directly garnish your Social Security benefits, and there are rules in place to ensure you can keep some of your money. That doesn’t mean that creditors cannot freeze or garnish your assets via your bank, but you aren’t going to lose all of your Social Security money to an old student loan or tax bill.

If you are concerned about having your Social Security benefits garnished, the best way to prevent it from occurring is to diligently pay your debts — all of them. Even if you can’t make your full payments, if you make arrangements with the creditor and keep your end of the deal, you won’t need to worry about having your benefits reduced or frozen. Understanding your rights and how the garnishment process works can also help you protect your money.

How Does Garnishment Work?

In the simplest terms, a garnishment means that a creditor gets a court order directing your bank to hand over money from your account or prepaid benefits card to repay a debt. This requires taking you to court and receiving a judgment against you for a specific amount.

The exception, of course, is the U.S. Treasury, which does not need a court order to garnish your benefits. The Treasury can reduce your benefits up to a certain amount if you haven’t paid your student loans, taxes, child support, or alimony.

If you owe money to the government, your monthly Social Security benefit will automatically be reduced. The reduced payment will be deposited into your bank account or issued by prepaid account, until the debt is repaid. If you have a repayment plan in place already, and you’re making payments as agreed, then your benefits will not be garnished.

Social Security Garnishment for Private Debt

When you have other types of debt, such as credit cards, mortgages, or auto loans, the garnishment process is much different. Again, the creditor must take you to court and receive a judgment before they can take any money from you or freeze your assets. However, they cannot directly garnish any of your federal benefits. Your Social Security payments will continue to be deposited as earned into your bank account until the judge decides that the creditor can garnish your accounts.

Once the creditor receives the court order, they will notify your bank of the judgment and ask for a “look back” into your account to determine whether they can collect money from you. The bank will look into your account to find out if your Social Security benefits have been deposited within the previous two months, and how much. Those two months of benefits are protected. Any benefits that have not been deposited in the previous two months are not safe, and can be taken by the creditor.

For instance, assume you get a $1,500 Social Security benefit each month. You receive a judgment, and the lookback shows that you have received $1,500 for the last two months, and that you have a total of $5,000 in your account. The first $3,000 in your account is safe from garnishment, and you can spend it as necessary. The remaining $2,000 is eligible for garnishment from the creditor. Going forward, you’ll be allowed to keep two months’ worth of benefits in your account, with the creditor collecting what’s owed from any additional funds.

Your Social Security benefits only receive this automatic protection, though, if they are directly deposited into your account or you receive them via a prepaid debit card. If you opt for paper checks and deposit them yourself, creditors can technically have your entire account frozen and garnish all of your benefits. You’ll need to go back to court and prove that your income is from a federally protected source in order to keep creditors from dipping into those funds.

Other sources of income, such as your retirement plan and alimony payments, may also be protected from garnishment. Therefore, if you’re facing a court order to seize assets, seeking qualified legal help is recommended.

Social Security Garnishment

Federal law only allows Social Security benefits to be garnished under specific circumstances. These include:

  • Federal student loans in default (not private student loans);
  • Back taxes;
  • Unpaid child support;
  • Unpaid alimony;

Again, the government does not need a court order to make these garnishments.

What Cannot Be Garnished

Private debt, including medical debt, auto loans, mortgages, and credit card bills, cannot be collected via garnishing your Social Security benefits, at least not directly. Instead, the creditor will garnish your bank account or other assets, including your home, car, or any valuable items you may own depending on your individual state laws. If you are still working, the creditor can also request to have your wages garnished.

How Much Can Be Garnished From Social Security?

For student loans and taxes, the maximum amount the government can take is 15%. For child support or alimony, the Treasury can garnish up to 65% of your monthly payment. If you are still supporting another child, your benefit is reduced by 50%. If not, the garnishment is 60% — and 65% if your payments are more than 12 weeks behind.  Private creditors can collect as much as the court order allows.

The good news is federal law dictates that a Social Security benefit cannot be less than $750, which is still a relatively low payment, especially when you account for deductions for Medicare. Even if you are subject to garnishment, your payment will be at least $750.

Assume, for example, that you receive $1,100 per month. You defaulted on a student loan, and thus are subject to a 15% garnishment. Your payment will be $935. However, you owe back child support — and it’s been more than 12 weeks since you last paid. Technically, your payment should be $388.50 (35% of $1,100) but because of the $750 threshold, you’ll actually receive $700, minus your Medicare payment.

This underscores the importance of saving for retirement early on, and not relying entirely on Social Security, as it will be difficult (if not impossible) to live on a mere $750 per month or less.

Ultimately, the best way to avoid garnishment is to avoid taking on too much debt, pay your debts, or work with creditors to get them paid off within your means. You can also prevent or reduce garnishments by working with a qualified attorney.

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