When a creditor cannot collect a balance you owe, the company eventually turns the responsibility for collecting the debt over to a debt collection agency. Debt collection agencies procure payments through aggressive collection action that sometimes, but not always, includes a lawsuit. Lawsuits give collectors the ability to garnish your income, forcing you to submit payment for the delinquent balance. Federal benefits you receive, such as Social Security or Supplemental Security Income (SSI), fall under a different set of garnishment rules from everyday wages.
By requesting a writ of garnishment from the court, a debt collector can force your employer to remit up to 25 percent of your wages to the collection agency. Social Security and SSI benefits, however, are provided to you by the federal government. The federal government does not acknowledge garnishment orders from commercial creditors. Thus, the collection agency cannot attempt to garnish these forms of income from you before you receive them. Doing so would be illegal.
An alternate form of garnishment available to creditors is a bank levy. Through a bank levy, the debt collection agency serves its writ of garnishment on your bank rather than your employer. The bank imposes a mandatory freeze on your accounts, and during a freeze you cannot access funds your accounts contain. After the freeze, the bank releases funds totaling the full amount you owe to the debt collector. Although the debt collector can seize your wages and other income you receive in this manner, your bank cannot legally turn over either your Social Security benefits or SSI payments to the collection agency during a bank levy.
When a bank receives a garnishment order from a collector, it does not review the levied account for potential exemptions. It is up to you to prove to your bank that your account contains Social Security and SSI payments that are exempt from seizure. Should you fail to fill out the necessary paperwork claiming any exempt income you hold within your account, the bank will turn over your federal benefits to the debt collector when the garnishment takes place.
Just because your Social Security and SSI benefits are exempt from garnishment by commercial debt collectors does not mean that your benefits are always safe from garnishment. Debt collectors collecting defaulted debt on behalf of the federal government have the right to garnish federal benefits directly from your bank accounts. In addition, the government will withhold a portion of your Social Security or SSI payments if you owe debt to any government agency, such as the IRS.
- Neighborhood Economic Development Advocacy Project: Debt Collection Basics; 2007
- U.S. Department of Labor: Wage Garnishment Laws; September, 2009
- Federal Trade Commission: Creditors Seeking Federal Benefits in Your Bank Account?; May, 2009
- U.S. Department of the Treasury: Answers About Garnishments
- Bankrate: Debt, Collection Agencies and Your Rights; Steve Bucci; 2009
- Lawyers.com: Bank Account Seizures; 2011