Can Social Security Be Garnished for Credit Card Debt?

Having too much credit card debt is never fun but living on a fixed income and worrying that your Social Security benefits may be garnished to pay that debt adds a whole new level of stress.

Social Security income can’t be garnished to pay credit card or other commercial debt.

Creditors can take you to court over unpaid debt, and if you have a job, payback may include wage garnishment, but if

you’re worried that your Social Security can be garnished for your credit card debt, you can rest easy.

However, you should know that Social Security, even Social Security Disability, can be garnished to pay some federal and state debt.

Military pay and veterans benefits are also protected from commercial garnishment but can be garnished for court-ordered child and spousal support.

Supplemental Security Income (SSI) is the only federal benefit that is protected from any type of wage garnishment.

If you live on a fixed income and depend on Social Security or some other federal benefit, but have high credit card debt, it’s important to understand how garnishment works. It’s also important to know how to protect your income, strengthen your finances and eliminate debt.

Are Social Security Benefits Protected?

Federal income retirement benefits are protected from commercial garnishment through the federal Consumer Credit Protection Act. This means Social Security and other federal benefits can’t be garnished by credit card companies, for medical bills, and other commercial creditors. Benefits are directly deposited into bank or credit union accounts or provided on a prepaid card (the Social Security Administration stopped mailing paper checks in 2013). Federal retirement income deposited into bank and credit union accounts, as well as prepaid card accounts, are protected from commercial garnishment under CCPA. This includes income from:

• Social Security. This is a retirement benefit paid to anyone who paid into the Social Security system during their working years (this shows on your pay stub as FICA).
• Supplemental Security. SSI is a benefit for individuals with a disability, even those who did not have FICA deducted from their pay, as long as they have limited income or assets.
• Social Security Disability Income. SSDI is a benefit for individuals with a disability who can’t work and who have paid FICA taxes.
• Veterans’ benefits.
• Military retirement pay.
• Federal Employee Retirement System income, including federal railroad worker benefits.
• Civil Service Retirement System income.

Social Security Benefits That Are Not Protected

SSI income is the only federal income that’s completely protected from any wage garnishment, including by the federal government.

While Social Security income can not be garnished by a credit card company to pay a debt, there is one creditor that can garnish it: the U.S. Department of Treasury. Officially called the Treasury Offset Program, Social Security and other federal retirement benefits can be garnished if you owe:

• Unpaid federal taxes
• Unpaid federal student loans
• Child support, alimony, restitution

If you owe federal taxes or have delinquent student loans, federal law allows you to keep $750 of the monthly benefit. (Any federal student loan garnishment is on hold until at least December 2023). The federal government can take any excess, up to an amount totaling 15% of a monthly benefit payment.

The government can take 50%-60% of your benefit if you owe child support.

The CCPA also limits how much non-federal retirement income can be garnished from an account. Those receiving Social Security or other federal retirement benefits must have an account balance that totals two months of their federal benefit before any garnishment can take place. For instance, if your monthly Social Security benefit is $800, there must be $1,600 in your account before and after garnishment.

VA disability and military retirement pay can be garnished for court-ordered child support and alimony payments. While the Treasury Department garnishes the pay, the decision must be reviewed by Department of Defense (for military retirement pay) or the VA (for veterans’ benefits) and meet a large number of specific requirements before pay can be garnished.

If you feel your Social Security income is being unfairly garnished by the federal government, you must call the Internal Revenue Service, which is part of the Treasury Department, to correct it, since they’re the one taking the money. The Social Security Administration cannot help.

Many states have wage garnishment protections that go beyond what the federal law allows. While your state can’t keep Social Security from being garnished by the federal government, it may allow you to keep more income and protect your other income.

Other Tactics Used by Creditors

If a credit card company, debt collector, or other commercial entity threatens to garnish your Social Security, they are in violation of the Fair Debt Collection Practices Act. You should report the company to the Consumer Financial Protection Bureau and the Federal Trade Commission. Consumer reports about FDCPA violations help strengthen laws and put agencies that violate the law out of business.

With garnishing your Social Security off the table for credit card companies, they may try other tactics to get you to pay, even if Social Security is your primary source of income.

Some ways creditors seek payment are:

• Collection agencies: If you are 180 days or more behind on a debt, the creditor can sell your debt to a collection agency. These businesses exist solely to collect money, and will call you nonstop, and use other means, to get you to pay. You are protected from harassment by the FDCPA, but if you owe the money, you still must pay it.
• Placing a lien on your home: A court judgment against you for an unpaid debt can put a lien on your home or other property. In most states, the property can’t be sold until the lien is paid.
• Court-ordered money/property seizure: A creditor can get a court order to seize non-Social Security money from your bank account. The bank is required to protect two months’ worth of Social Security payments in your account if you get it by direct deposit, but the creditor can go after anything more than that. In the case of a mortgage or other secured debt, a creditor can take your house or whatever property was used as security.
• Taking your tax refund: Federal and state governments may take your tax refund to cover unpaid tax or other government debt. Unpaid federal taxes have top priority, followed by other federal debt. State debt (for instance, taxes or unemployment compensation repayment) is the lowest priority. Once the refund is deposited into a bank account, depending on the state you live in, private creditors can go after it, too. It’s no longer your tax refund, it’s just money in your bank account.

How to Handle Creditors

If creditors are hounding you, and you’re living on a fixed income, like Social Security, the stress of repaying debt can be overwhelming.

Positive action to resolve your debt and deal with creditors can ease the stress. Everyone’s financial situation is different, and every strategy doesn’t work for every person, but let’s take a look at some of the top debt relief solutions.

Credit Counseling

Credit Counseling can help anyone handle creditors, as well as eliminate debt. A session with a nonprofit credit counselor, usually over the phone, is free. The counselor will help you create a budget, review your finances, and discuss debt relief options. Nonprofit credit counseling agencies also have free financial education resources and tools that can help you access your credit report, and more.

Making a Budget

Making a budget and sticking to it is essential for all debt-relief solutions. You can’t take control of your debt and finances until you have an in-depth understanding of your income and your monthly bills. Look at budgeting as a way to empower yourself to reach your financial goals and become debt free. You don’t need fancy software or an app, a pen and pad of paper will do. Whatever works for you and keeps you on track.

Debt Consolidation

A debt consolidation plan is a good solution for those with high-interest debt and a good credit score. A debt consolidation loan combines credit card and other unsecured debt into one fixed monthly payment over a set period of time. A lower interest rate (that’s where the good credit score comes in), and a fixed term make a debt consolidation loan much less costly than paying high-interest revolving credit card debt. It only works if you stop using credit cards. Otherwise, you have the loan payment every month as well as new credit card bills.

Debt Management Plan

Debt management plans, like debt consolidation, combine debt into one fixed, monthly payment, but they are not a loan. Offered by nonprofit credit counseling agencies, DMPs take 3-5 years to complete. A credit counselor from a nonprofit agency, works with creditors to get lower interest rates, and one fixed monthly payment that fits your budget. The plan includes a monthly fee of $35-50. A DMP may lower your credit score initially, but your score will improve within six months with on-time payments and decreasing balances. A DMP does not appear on your credit report.

Debt Settlement

Debt settlement is a offered by for-profit companies. Unlike a debt management plan, the company must negotiate with creditors to pay less than what you owe. You make a monthly payment into an escrow account, which is used to pay creditors in a lump sum offer. It can take 2-3 years to settle your debt, and late fees and interest accrue over that time. Because the full balance wasn’t paid and payments weren’t made, debt settlement can lower your credit score 100-200 points. It stays on your credit report for seven years.

Nonprofit Debt Settlement

Nonprofit debt settlement is a new program offered by several nonprofit credit counseling agencies. It also is called credit card forgiveness. The difference is there is no 2-3 year negotiating period. Creditors agree up front that you will pay 50%-60% of what you owe. The plan takes 36 months, over which you make fixed monthly payments. There are strict qualifying rules, and because the program is new, the number of banks and other creditors that take part is limited.

Bankruptcy

Bankruptcy could be the best solution for people with debt they can’t pay, but the consequences of bankruptcy are severe. Social Security income is protected under bankruptcy, as are other assets like your home and car. With Chapter 7 bankruptcy, a court-appointed trustee sells your non-exempt assets, with the proceeds paying off your debt. Whatever can’t be paid is forgiven. With Chapter 13 bankruptcy, the court creates a repayment plan that lasts 3-5 years, and unsecured debt left after the plan is completed, is forgiven. Bankruptcy will stay on your credit report for 7-10 years and will affect your ability to get a car loan, mortgage, and other credit.

Get Professional Help with Becoming Debt Free

Credit counselors can provide financial help for seniors, or anyone else who relies on Social Security or a fixed income and wants to become debt free.

Call a nonprofit credit counseling agency and talk to a counselor about your financial situation, and your stress will immediately ease. Nonprofit credit counseling agencies can be found at the National Foundation for Credit Counseling. The U.S. Department of Justice also has a list of approved agencies, including which are available in each state.

Counselors at nonprofit credit counseling agencies are required by law to give you advice that’s in your best interest. They also have heard it all before and won’t judge you or criticize your financial decisions but will work with you and your budget to find the best solution to becoming debt-free.

They can explain Social Security garnishment, what credit card companies can and can’t do when seeking payment, what your rights are if you have debt in collections, and more.

A free discussion with a credit counselor will help you form a strategy to reach your financial goals and become debt free.