What happens if a creditor obtains a court order seeking garnishment of your wages, but your income comes from Social Security or a pension? The rules can be a little tricky, so here’s a quick Resnick Law guide to understanding your rights:
Can Social Security be Garnished?
Typically, your Social Security can’t be garnished. Most retirement funds, including Social Security income, are generally protected from creditors: Specifically, up to two months’ worth of Social Security benefits deposited into a bank account or on a prepaid card are off limits. (For example, if you receive $1,500 per month in Social Security, your bank must protect up to $3,000 in your account from being seized, but money beyond that amount is fair game for banks to freeze under court order.)
However, there are specific circumstances instances when Social Security income can be subject to garnishment depending on the creditor:
- Uncle Sam — If you owe money to the government, such as back taxes to the IRS or for a defaulted federal student loan, some of your Social Security income may be in jeopardy.
- Spousal or Child Support — If you owe child support or alimony, it can also be an acceptable reason for garnishing Social Security benefits.
The harshest treatment of Social Security benefits is when it comes to unpaid taxes. According to the U.S. Treasury, under the Federal Payment Levy Program, Social Security benefits are subject to a 15% levy to pay delinquent taxes, no matter how much income this leaves you with. For debts owed to other government agencies, such as student loans, the first $750 in benefits is off-limits. The 15% levy still applies, as long as it leaves you with at least $750 per month.
For child support and alimony, the maximum allowed under individual state law determines garnishment, but it cannot be more than the maximum set by the Consumer Credit Protection Act. According to this rule, Social Security benefits can be reduced by as much as:
- 50% if you support another child in addition to the one involved in the garnishment.
- 60% if you don’t have any other children to support.
- 65% if the child support is more than 12 weeks in arrears
No more than 25 percent of your paycheck may be subject to garnishment, save for the aforementioned exemptions.
Note of Caution: Social Security benefits paid by paper check don’t enjoy the same two months’ protection as di.rect deposits and prepaid cards. So if you want the maximum protection from garnishments, switch to an electronic payment method.
What About a Pension?
In general, pension income enjoys the same protection as Social Security benefits — off limits to most creditors — except for government debts and child support. And pension income is protected from garnishments before it’s given to you, but not after you receive it.
What that means, practically speaking is that if a creditor obtains a court order to seize $2,000 from your bank account, the money in your account isn’t necessarily protected just because it happens to have come from pension income. However, according to the Consumer Financial Protection Bureau, under the Employee Retirement Income Security Act, there is a rule that stops pension benefits from being assigned directly to a creditor.
The Bottom Line
The three “people” you can’t skirt your financial obligations to include: a former spouse, your children and Uncle Sam. If you owe money to the IRS, a federal student loan program, or for back child support, some of your Social Security and pension income can potentially be taken to satisfy your debt. For most creditors, however, sources of retirement income such as these are off limits.
For specific circumstances, contact a Resnick Law attorney who can provide counsel regarding your financial situation. Call (248) 642-5400 or contact us online here.