Can the IRS or Creditors Garnish Your Disability Benefits?

Can the IRS or Creditors Garnish Your Disability Benefits?

Concerned that the IRS (or creditors) could garnish your disability benefits? There’s no sense in losing sleep over something that might not even happen. Read on to learn the rules about who, if anyone, can garnish federal disability benefit payments.

What It  Means to “Garnish” Payments

The Consumer Financial Protection Bureau offers a pretty clear definition for “garnish.” Let’s say that a debt collector or creditor sues you for any unpaid debts and wins a judgment against you.  Then, that company can get a court order requiring your bank or credit union to withdraw money from your account. This is called a garnishment.



Can Creditors or Debt Collectors Garnish Your Government Benefits?

A U.S. Department of Treasury rule requires banks to automatically protect certain federal benefits from being frozen. This rule also means no debt collector or creditor can garnish your federal benefits, provided they’re directly deposited into your account. Like every rule, there are some exceptions. But generally, your bank or credit union must automatically protect two months’ worth of benefits administered by any federal agency. In other words, creditors and debt collectors cannot garnish your:

  • Veterans disability benefits
  • Supplemental Security Income (SSI)
  • Social Security retirement benefits
  • Social Security Disability Insurance (SSDI) payments
  • Veterans pension benefits

Can the IRS Garnish Your SSI or SSDI Payments?

There are two different types of federally administered disability benefits: SSI and SSDI. SSI is a federal program funded by general tax revenues that help blind and disabled individuals with little or no income. The SSI program offers monthly financial assistance to the poorest Americans with few available resources, even if they have never worked.

SSI benefits, on the other hand, are protected from every type of garnishment. That means nobody can garnish your SSI benefits to pay back taxes to the IRS or overdue spousal support payments. This is why it’s important to know whether you’re receiving SSI or SSDI benefits. If you’re not sure whether anyone can garnish your benefits, meet with an attorney to review your rights and obligations.

SSDI pays benefits to you and certain members of your family in the event of illness or injury if you worked long enough and paid Social Security taxes. Though banks and creditors generally cannot garnish SSDI benefits, federal government agencies — like the IRS — are a different story.

Family Law Cases and Federal Tax Debts Exempt From the “No Garnish” Rule

Legally, there are a few instances where the federal government can garnish your SSDI as well as SSI checks. This is particularly true in family law cases involving court-mandated alimony or child support payments, even if you’ve declared bankruptcy.

The federal government can also garnish your SSDI benefits for repayment of several specific government-secured debts, including:

  • Back income taxes
  • Federally backed student loans
  • Certain civil penalties
  • Other defaulted federal loan payments

Does Declaring Bankruptcy Make Any Difference?

Every disability benefit check, regardless of type, is exempt from seizure by debt collectors or creditors if you declare bankruptcy. But again, there are exceptions: The government can still garnish your disability benefit income for child support or alimony payments. In 2005, Congress amended the bankruptcy law to ensure that it wouldn’t interrupt garnishments that pay for domestic support obligations:

“The Social Security Administration will continue to withhold benefits to honor a properly served order to garnish Title II benefits for child support or alimony, even if a beneficiary files a petition for bankruptcy.”

Check Your Credit Report

You may believe a creditor or financial institution is trying to collect money from you that you don’t really owe. If that applies to you, first, check your credit report for any irregularities or errors. Then, work with the credit company and your creditors to correct or remove these issues as soon as possible.

You May Qualify for Free Legal Assistance

If you’re confused by all these rules and exceptions about who can or can’t garnish your payments, you’re not alone. The laws regarding disability benefits and garnishment are complex and ever-changing. Your best bet is to sit down with an experienced Social Security attorney or disability advocate to review your circumstances. Our disability advocates provide free legal consultations so you can meet in person and get answers to all your questions. To see if you may qualify for free legal assistance, click the button below to start your claim evaluation now.

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