Can your Social Security check be garnished?

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Retirement » Can Social Security Be Garnished?

If creditors and debt collectors are hounding you for money, you may wonder: Can Social Security be garnished? The answer is: It depends on who you owe money to.

Banks and other financial creditors can't touch your Social Security benefits, but when the government is collecting on a debt, those funds are fair game.

The federal government can garnish your benefits for repayment of several types of debts, including federal income taxes, federal student loans, child support and alimony, nontax debt owed to other federal agencies, defaulted federal home loans and certain civil penalties. Supplemental Security Income cannot be garnished under any circumstance.

What you can lose

Among the government creditors who can grab a piece of your Social Security check, the strongest arm belongs to the IRS. Via the Federal Payment Levy Program, Social Security benefits are subject to a 15 percent levy to pay delinquent taxes. Unlike nontax debts to other agencies, for which the first $750 of your monthly benefits are off-limits to garnishment, the IRS can take its 15 percent cut regardless of how little money you're left with. Lump-sum death benefits and Social Security benefits paid to children are not subject to this levy.

If you owe money on a student loan, it doesn't matter how long ago you were in school. A 2005 U.S. Supreme Court case (Lockhart v. U.S.) determined there is no statute of limitations on Social Security offsets to repay student loans. The government can shave off up to 15 percent, provided your remaining monthly benefit doesn't drop lower than $750.

Delinquent child support and alimony cases are processed through the national Court Ordered Garnishment System. In these situations, the maximum reduction to your benefits depends on the state where you live. The garnishment is limited to either the maximum allowed under state law or the maximum under the Consumer Credit Protection Act, or CCPA, whichever is less.

Per the CCPA, you can theoretically lose up to half your benefits if you are supporting a child or spouse in addition to the one involved in the court order; 60 percent if you're not supporting another child or spouse; and up to 65 percent if the original court-ordered support is more than 12 weeks in arrears.

From the time you receive your first notice of a liability that is subject to garnishment, you generally have about 120 days to respond before the garnishment takes effect, says John Harman, an attorney and licensed taxpayer representative with JK Harris & Company, a tax-resolution firm based in Goose Creek, S.C. Every agency issuing a garnishment is required to provide information about how to appeal the decision.

The IRS will issue three notices before a levy goes into effect. You have 30 days from the date of the final notice to make a pay arrangement before the agency starts docking your monthly benefits. Other agencies have similar procedures, Harman says.

Losing the levy

Once you make an arrangement with the appropriate agency to repay your debt, the Social Security garnishment is released, says Harman. In some cases, you may be able to negotiate a settlement.

"There are rules allowing all the agencies, when someone owes money to them, to make some compromises with the debtor, to set up payment plans and, in true hardship circumstances, provide some other relief," says Carolyn Carter, deputy director of advocacy with Boston-based National Consumer Law Center.

For tax debt, you may be able to negotiate an agreement to pay less than your full bill if you are truly strapped. But be aware that the IRS has strict eligibility rules for this arrangement, called an Offer in Compromise, and charges a $150 nonrefundable fee to apply.

In the case of a tax debt, your notice of liability may not pinpoint the specific reason you owe the tax, Harman says. Finding the root of the problem may require some investigation on your part, starting with a request for a review of your files.

"There could be a situation where, for example, a homeowner had been foreclosed on in a previous year," he says. "Most individuals don't understand that this can be considered income when the mortgage company writes off that liability. So the individual who had their home foreclosed on can actually end up with a tax debt that they're not aware of."

While tax law in effect through 2012 protects some homeowners from foreclosure taxes, affected homeowners must file a special IRS form to avoid the tax.

Closing a loophole

While the garnishment of Social Security benefits by nongovernment creditors is against the law, a troublesome loophole has been the ability of banks to automatically freeze customers’ accounts and use the funds to pay creditors. Often there was little effort to prevent Social Security funds from being included in that freeze, and the burden was on the debtor to prove that some of the funds paid out should have been exempt.

A federal regulation that took effect in May 2011 aims to remedy the problem by requiring financial institutions to determine whether a debtor’s account contains Social Security benefits and other exempt funds. The federal government now applies an electronic tag to these funds when they are deposited directly. The bank must protect all tagged deposits made during the two months preceding the receipt of a creditor’s garnishment order.

Escaping garnishment

Harman says people need to be proactive to avoid the threat of garnishment.

"They need to be aware of any potential debts that they have and be thorough when they're sorting through their mail," he says. "Don't throw away any notices from any federal agencies, particularly the IRS."

For student loan debt, Carter says you'll have a wider range of options if you haven't already defaulted. The National Consumer Law Center operates a website that offers information and advice for those having trouble repaying student loans. Find more information at NCLC.org.

"There are all sorts of programs for them to do what you might call workouts of their student loans -- reducing the interest rates, changing the payment schedules," Carter says. "In some circumstances, deferments are available. If the student is totally and permanently disabled or if the school closed while the student was there, and in some other circumstances, the student can get the loan discharged."



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