Creditors & Your Social Security Income

So retirement is finally just within your grasp. Along with that golden moment, your Social Security benefits will kick in as well. While nobody harbors dreams of living solely off of their Social Security income, having those bucks roll in every month will certainly help you get your ends closer to meeting.

That is, unless you’re in debt.

Here’s what you need to know about creditors and your Social Security income.

Internal Revenue Service

The IRS couldn’t care less about your retirement plans. If you owe back taxes, they can take 15 percent of your check every month until the arrears are paid in full. Similarly, if you thought your Student Loan debt just magically vanished when you stopped paying all of those years ago, you’re going to be in for a rude awakening when you start collecting your Social Security benefits.

Federal Student Loans

Like the IRS, the Federal Student Loan people can garnish 15 percent of your monthly benefit. However, unlike the IRS, they have to leave you with at least $750 a month. So if taking that 15 percent would leave you with a check smaller than $750, they can only take as much as they can get from it up to that amount.

Kids and Exes

But wait, it gets worse. You’ll see up to 65 percent of your Social Security income vanish if you’re in arrears on child support and/or alimony. While the exact figure varies from state to state, the National Court Ordered Garnishment System will redistribute your benefit to ensure your children and ex-spouses are duly supported. Hopefully, you can figure out how get by on 35 percent of your benefit.

Other Creditors

If you get a paper Social Security check and deposit it into a checking account, a creditor can freeze that account and get access to your Social Security income. You must file a formal declaration those funds are derived from your Social Security benefit to prevent this.

On the other hand, if the funds are deposited directly into the account by the Social Security Administration and a creditor requests the account be frozen, the onus is upon the bank to determine whether you’re getting direct deposits from Social Security. If it is concluded you are, those funds will protected.

With that said; if you’re getting close to retirement and you have nagging debts you can’t satisfy, consulting a service like Freedom Debt Relief is a smart move. They’ll evaluate your obligations against your income to help you come up with a plan of action to get your debts under control.

The Garnishment Process

If your bank gets a request for garnishment, they’re required by law to look back through your two months of deposits just before the request came in. If it is determined you are receiving direct deposited Social Security benefits, the total amount of those deposits must remain untouched.

However, this does not protect all of the money in the account. Nor does it protect money in any of your other accounts—even if you transfer funds derived from your benefit into them. In other words, the only account eligible for protection is the one into which the funds are initially deposited.

When it comes to creditors and your Social Security income, the best play in each of the above cases is to get your debts settled before your benefits start paying out. Your funds won’t be protected if you owe back taxes, a Federal Student Loan, alimony or child support. You’ll also have to manage any additional accounts carefully to ensure your funds are protected from all other debtors.

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