Protecting SSDI Benefits from Creditors
In most cases, federal law makes it illegal for creditors to touch your Social Security Disability Insurance (SSDI) payments without your permission. This is also true for Social Security retirement benefits, Supplemental Security Income (SSI) and many other federal benefits.
The big exception to this rule is the federal government itself. The government can hold back a portion of your SSDI payments to make up for taxes or other debts you owe to the federal government, as well as unpaid child support or alimony.
Federal agencies, including the Internal Revenue Service (IRS), can withhold a portion of your SSDI payments if you owe money for the following:
- Unpaid child support or alimony ─ Up to 60 percent of your monthly SSDI benefit can be taken for unpaid child support or alimony. If you have another child or spouse that you also support, no more than 50 percent of your monthly SSDI benefit can be taken. If your support payments are more than 12 weeks late, your monthly benefit may be reduced by another 5 percent unless you prove that this would create a hardship for you.
- Non-tax debt owed to a federal agency─ Non-tax debt includes food stamp overpayments, federally guaranteed student loans and federal mortgage loans. Your monthly SSDI benefit can be reduced up to 15 percent until all of this debt is paid off. The government will not reduce your benefit payment to less than $750 per month. You may be able to stop the government from reducing your benefit if you can prove that it is causing you a hardship.
- Unpaid federal taxes─ Under the Federal Payment Levy Program (FPLP), the IRS can take 15 percent of your monthly SSDI benefits to make up for any unpaid federal taxes. Tax debt is different from non-tax debt in that the first $750 of your monthly benefit is not protected in this case. The IRS takes 15 percent, even if that means you are left with less than $750 per month.Before the IRS starts reducing your SSDI benefit, it will send you a final notice. Then, you have 30 days to either pay the tax or work out a payment agreement with the IRS. If you don't work out a payment agreement in 30 days, the IRS then will start deducting 15 percent from your monthly SSDI benefit to pay the tax.The IRS may determine that you cannot pay the debt because of economic hardship or a lower income. In this case, it can temporarily hold off on trying to collect the debt. But the debt doesn't go away. The IRS will continue to add on penalties and interest. You also can try to get an Offer in Compromise (OIC), where the IRS agrees to accept less than the full amount that you owe.A word of caution: The IRS has 10 years from the date they assessed the tax to collect unpaid taxes. If this deadline is coming up, the IRS can issue a "paper levy" to the Social Security Administration so that they can take all of your SSDI benefits to pay the tax.
If you have defaulted on a debt, your creditor or a debt collector may get a court order to take money from your checking or savings account to pay the debt. This court order is called a garnishment order. Debts can include unpaid credit card bills, utility bills, medical bills or loans.
If you have any Social Security payments in the account, the creditor cannot legally take these funds. Federal rules require that your bank or credit union take some steps to identify and protect the Social Security funds in your account.
Here's the bottom line: Your bank or credit union must automatically protect any Social Security payments that were electronically deposited into your account during the last 60 calendar days. If you have any Social Security funds in your account beyond that amount, you'll have to prove it to the court to get the rest of your money back.
Here are the details of what your bank or credit union is required to do:
- When your bank or credit union receives the garnishment order, it has to determine if any federal benefit payments were electronically deposited into your account during the last 60 calendar days.
- Then, it has to make sure you have access to a "protected amount" of your funds. The protected amount is the sum of the federal benefits deposited into your account during the 60-day window. Or, if your balance is less than the sum of these payments, the protected amount is the remaining balance of your account. You may use these funds as you normally would. The idea is that you should have about two months' worth of benefits to live on.
- If your account contains more money than the sum of the benefits deposited during the 60-day period, these funds are subject to the court order. They may be frozen or turned over to your creditor. If you think that these additional funds are also federal benefit payments, you will have to follow a legal procedure to get this money back.
Example: Say you have a $2,250 balance in your checking account. Your bank receives a court order from a debt collector to turn over the funds in your account to pay your debt. The bank determines that you have received two monthly SSDI payments of $1,000 each during the last 60 days for a total of $2,000. The bank protects this $2,000 from the court order so that you can use this money to live on. The remaining $250 can be frozen by your bank or handed over to your creditor.
These are some situations where your Social Security benefits would not be set aside as protected funds by your bank or credit union. If any of these apply to you, you may have to prove to the court that the funds are from Social Security:
- You deposited a paper Social Security check. Banks and credit unions are only required to look for payments deposited by direct deposit. If you deposit a paper check into your account, your bank or credit union will not identify those funds as benefit payments when it reviews your account.
- You have more than two months of benefit payments in your account. Any benefit money that was deposited more than 60 days ago will not be included in your protected amount of funds.
- You have a lump-sum, retroactive payment that was deposited more than 60 days ago. If your lump sum was deposited electronically during the 60-day window, it will be protected by your bank or credit union. Otherwise, you may lose access to it until you challenge the court order.
So what should you do if you think that some of your Social Security funds have been seized to pay your creditors? State law sets up a procedure you must follow to get your funds returned to you:
- Your bank or credit union must send you a notice within three business days of receiving the garnishment order. The notice will tell you the procedure you must follow to claim that additional funds in your account should be exempt from garnishment because they are Social Security payments.
- The procedure may vary depending on which state you live in. You may need to notify your bank or credit union, the creditor and the court that the funds involved are exempt from creditors and protected under federal law. You also may have to file some paperwork with the court. Be prepared to provide evidence that the funds in your account came from Social Security.
- Be careful to meet any deadlines in the notice from your bank or credit union. You may need to act quickly to take the necessary steps to recover your money.
You don't need to worry about taking any extra steps if
- You deposit your benefits by direct deposit, and
- You don't have or don't plan to have more than two months' worth of benefits in your account on any given day.
If both of these things are true for you, then your bank or credit union will automatically protect your funds. See the answer to the question above for a detailed explanation of how this protection works.
Just one thing to keep in mind: Don't transfer your benefit payments to another account. If you use direct deposit, your bank or credit union will protect your benefits from creditors for 60 days. If you transfer your funds to another account before those 60 days are up, those funds lose that automatic protection.
Here are some extra steps you can take to protect your benefit payments. These steps may help if you plan to build up more than two months' worth of benefits in your account or if you are expecting to receive a lump-sum payment that you won't spend down within 60 days.
- Keep your SSDI payments in a separate account. Don't deposit funds from any other source into this account. That way, you can easily show that all the money in your account comes from Social Security.
- Consider receiving your benefits on a debit card. For example, the U.S. Treasury Department offers an electronic debit card as one way to receive Social Security benefits. This option will protect all of your funds from creditors, even those that were deposited more than 60 days ago. Ask your Allsup representative about your options.
Benefit payments are automatically loaded onto the debit card on payment day each month. The card can be used anywhere that MasterCard® debit cards are accepted, including ATMs.
The card only holds federal benefits, so creditors cannot go after it to pay your debts. You cannot load any other types of funds onto the card. Look carefully at the pros and cons of both direct deposit and a debit card as you decide on the best way to receive your SSDI benefits.