Savvy Senior: Can a Debt Collector Take My Social Security Benefits?

Dear Savvy Senior,

Can my Social Security benefits be garnished if I have some outstanding debts? I just turned 62 and would like to start collecting my retirement benefits, but want to find this out before I apply.

--Worried Retiree

Dear Worried,

Whether your Social Security benefits are garnishable or not depends on whom you owe. Banks and other financial creditors, for example, can’t touch your Social Security checks. But if Uncle Sam is collecting on a debt, some of your benefits are fair game. Here’s what you should know.

Creditor Protections

If you have credit card debts, medical bills, unpaid personal loans or pay day loans, you’ll be happy to know that your Social Security benefits are safe from your creditors. Section 207 of the Social Security Act prohibits debt collectors or a bankruptcy court from dipping into your bank account to take Social Security money for purposes of paying off what you owe.

Supplemental Security Income (SSI), veterans benefits, federal employee and civil service retirement benefits, and benefits administered by the Railroad Retirement Board Administration can’t be touched either.

But be aware that your creditors can still take legal action against you to recover what you owe them, and depending on your state’s law, they may be able to garnish your wages and tap into other allowable assets, if you have any.

Government Garnishment

If, however, you owe money to Uncle Sam, it’s a very different story. The federal government can garnish a portion of your Social Security benefits for repayment of several types of debts, including federal income taxes, federal student loans, state-ordered child support and alimony, nontax debt owed to other federal agencies, defaulted federal home loans and certain civil penalties. (If you receive SSI, those benefits cannot be garnished under any circumstance.)

How much can actually be taken depends on the type of debt you owe. In most situations, the government can pull 15 percent of your benefits to cover your debt, but under the Debt Collection Improvement Act of 1996, it must leave you at least $750 each month. That is, unless the levy is for federal income taxes. In that case, the government isn’t required to leave $750 behind.

The other exception is for child support or alimony payments. Depending on your state laws, the court may be able to take half of your benefits or more to pay your obligations to your children or ex-spouse.

If you think your Social Security benefits might be raided to pay overdue bills, you need to address the problem – don’t ignore it. Most government agencies are happy to work with you so long as you’re willing to work with them.

The government typically sends several letters about a debt before it takes action. The final letter will inform you of the intent to levy Social Security payments, and after that, you have 30 days to contact the agency and work out a payment plan.

Get Help

To get a handle on your debt problems, consider contacting a nonprofit financial counseling agency, which offers free and low-cost services on managing financial problems. To locate a credible agency in your area, use the National Foundation for Credit Counseling website at NFCC.org or call 800-388-2227.

You also need to make sure you’re not missing out on any financial assistance programs. The National Council on Aging’s website (BenefitsCheckup.org) contains a database of more than 2,500 federal, state and local programs that can help seniors with prescription drug costs, health care, food, utilities, and other basic needs. The site will help you locate programs that you may be eligible for and will show you how to apply.