Tag Archives: Social Security benefits

Social Security and Protection from Creditors

When you fall behind in paying your creditors the money you owe them, your creditors have various powers to address the situation.  Your creditors can contact you in an attempt to receive payment, report your delinquent (or non-existent) payments to the three credit bureaus, potentially file a lawsuit against you to receive a judgment for the money owed, or sell the bad debt to a collection agency (who likewise can file a lawsuit against you for the money owed).  With a judgment against you in hand, whether it is the original creditor or a collection agency, they can potentially garnish your wages, place liens on your property, or take other legal steps to obtain the money you own to them.

Protection of Social Security Benefits

Many people, especially those who are receiving the benefits because they are disabled, rely on Social Security income to maintain a minimum standard of living.  Therefore, when it comes to Social Security Benefits and creditors, it is important to understand what protection the law gives people related to these benefits outside of declaring bankruptcy.

Section 207 of the Social Security Act reads as follows:

The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

What the wording noted above means is that creditors cannot seize Social Security benefits through a levy against your property, garnishment against your wages, or any other legal method.  Section 207 provides this protection from creditors over Social Security payments regardless of why you are receiving those payments, whether the payments relate to retirement, disability, or as a death benefit to the surviving spouse.

Other Points to Remember

Section 207 of the Social Security Act may only protect your Social Security benefits from creditors if you can prove that a given balance of funds is from Social Security payments.  If you co-mingle Social Security payments with other account balances or other income streams, it may create confusion in the eyes of the law and increase the chances that a creditor can seize those funds in spite of the protection offered by Section 207.  Therefore, you would be wise to have your Social Security payments sent to a bank account used solely for those Social Security payments, so there is no confusion from a legal perspective on the source of the funds.

In addition, remember that the protection the Social Security Act provides for Social Security benefits against creditors does not extend to the government or the Internal Revenue Service (IRS).  You still have to pay any applicable taxes on your Social Security benefit payments, and if you fail to do so, the IRS can potentially seize your Social Security funds to satisfy the tax owed.

Hiring a Bankruptcy Lawyer

Keep in mind that the information above is general in nature and should not be considered legal advice.  If you want legal assistance, you should speak with a bankruptcy attorney.  Even if you are not considering declaring bankruptcy at this time, a bankruptcy attorney can advise you on what protection the law provides for different types of property in your state.  And if filing bankruptcy becomes a necessary option, a bankruptcy attorney can help you take the right steps to complete the bankruptcy properly.

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