December 23, 2012

Savvy Senior: Uncle Sam can take debtor's benefits

DEAR SAVVY SENIOR: I have some outstanding debts and would like to find out if my Social Security checks can be garnished. What can you tell me? -- Old and In debt

DEAR OLD: Whether your Social Security benefits are garnishable or not depends on whom you owe. Banks and other financial creditors, for example, can't touch your Social Security checks. But if Uncle Sam is collecting on a debt, some of your benefits are fair game. Here's what you should know.

If you have credit card debts, medical bills, unpaid personal loans or payday loans, you'll be happy to know that your Social Security benefits are safe from your creditors (those you owe).

But, be aware that your creditors can still take legal action against you to recover what you owe them, and depending on your state's law, they may be able to garnish your wages and tap into other allowable assets, if you have any. But they can't take the money you receive from Social Security.

Nor can they touch Supplemental Security Income (SSI), veterans benefits, federal employee and civil service retirement benefits, and benefits administered by the Railroad Retirement Board Administration.

To ensure your Social Security or other government benefits are protected from creditors, you need to have them directly deposited into your bank account, or to a Direct Express Debit MasterCard account (see godirect.org). Benefits deposited by check into your bank account aren't protected.

Also, be sure you don't transfer your benefits to another account, or else the protection is void. And don't have credit cards or other loans at the bank where your benefits are deposited. Money owed to a bank, if it also holds the deposit account, can be frozen.

If, however, you owe money to Uncle Sam, it's a very different story. The federal government can garnish a portion of your benefits for repayment of several types of debts, including federal income taxes, federal student loans, child support and alimony, nontax debt owed to other federal agencies, defaulted federal home loans and certain civil penalties. (If you receive SSI, those benefits cannot be garnished under any circumstance.)

How much can actually be garnished depends on what you owe for. If you owe back taxes to the IRS, 15 percent of your Social Security benefits can be taken each month until the debt is paid in full. The government uses the Federal Payment Levy Program to garnish your payments.

If you owe money on a student loan -- it doesn't matter how long ago you were in school -- the first $750 of your monthly benefits is off-limits to garnishment. After that, the government can shave off up to 15 percent.

And if you owe past or current child or spousal support, you could lose as much as 50 to 65 percent of your benefits. Delinquent child support and alimony cases are processed through the national Court Ordered Garnishment System. In these situations, the maximum reduction to your benefits depends on the state where you live. The garnishment is limited to either the maximum allowed under state law or the maximum under the Consumer Credit Protection Act, or CCPA, whichever is less.

You also need to know that before your Social Security benefits are garnished, you'll receive several letters of notice from the IRS, and be given ample opportunity to make a pay arrangement. If you don't, the agency will start docking your monthly checks.

If you believe your accounts are being frozen or garnished improperly, you'll need to seek legal help. The American Bar Association provides links to free and low-cost legal help in your area at findlegalhelp.org.

Or, call the Eldercare Locator at 800-677-1116 for referrals.

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of "The Savvy Senior" book.

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