If you receive Social Security Benefits, in almost all instances creditors are not allowed to take these funds to pay a past-due debt. Under federal law, Social Security benefits may only be garnished in order to collect debts owed to the federal government (like taxes or student loans) or past due alimony/child support. No other creditors can force you to pay them directly from your benefits.
The protected status of Social Security benefits also extends to your bank account, but you must be able to prove that they money in your account came from Social Security. This is referred to as “tracing.” If you can “trace” your money back to your Social Security benefits, then those funds are also exempt from collection.
The intent of these federal rights is to protect elderly individuals from overzealous creditors. Actively defending collection lawsuits in state court is often the best way to assert these rights.
However, debt collectors are aware of these rights, and their business models often seem to rely on default judgments. Because they cannot collect from your Social Security benefits directly, they often convince people establish monthly payment plans with them. These payment plans often allow creditors to receive more than they would otherwise be allowed to collect under law.
Even if you are fully judgment-proof, a bankruptcy filing may be also desired in order to ensure a stop to all collection calls, letters, lawsuits, etc.
In bankruptcy, the protected status of your Social Security benefits remains intact. Income from Social Security is not counted for purposes of determining Chapter 7 eligibility. Similarly, in a Chapter 13 context, Social Security benefits need not be counted in the calculation of your monthly plan payment. And courts have made clear that the exercise of these federal rights does not create any good faith issues.
If you receive Social Security and have debt collectors contacting you for payment, please contact us today for a free consultation. You may be able to fully protect your income.
Culik Law is a Massachusetts Attorney / Law Firm. The post is not intended as legal advice.
Culik Law is a BBB Accredited Business located in Woburn, MA. They have been Accredited since 2010.