FEATURE ARTICLE: Can Social Security be garnished?
If creditors and debt collectors are hounding you for money, you may wonder: Can Social Security be garnished? The answer is: It depends on who you owe money to.
Banks and other financial creditors can’t touch your Social Security benefits, but when the government is collecting on a debt, those funds are fair game.
The federal government can garnish 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. Supplemental Security Income cannot be garnished under any circumstance.
What you can lose
Among the government creditors who can grab a piece of your Social Security check, the strongest arm belongs to the IRS. Via the Federal Payment Levy Program, Social Security benefits are subject to a 15 percent levy to pay delinquent taxes. Unlike nontax debts to other agencies, for which the first $750 of your monthly benefits are off-limits to garnishment, the IRS can take its 15 percent cut regardless of how little money you’re left with. Lump-sum death benefits and Social Security benefits paid to children are not subject to this levy.
If you owe money on a student loan, it doesn’t matter how long ago you were in school. A 2005 U.S. Supreme Court case (Lockhart v. U.S.) determined there is no statute of limitations on Social Security offsets to repay student loans. The government can shave off up to 15 percent, provided your remaining monthly benefit doesn’t drop lower than $750.
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.
Per the CCPA, you can theoretically lose up to half your benefits if you are supporting a child or spouse in addition to the one involved in the court order; 60 percent if you’re not supporting another child or spouse; and up to 65 percent if the original court-ordered support is more than 12 weeks in arrears.
From the time you receive your first notice of a liability that is subject to garnishment, you generally have about 120 days to respond before the garnishment takes effect, says John Harman, an attorney and licensed taxpayer representative with JK Harris & Company, a tax-resolution firm based in Goose Creek, S.C. Every agency issuing a garnishment is required to provide information about how to appeal the decision.
The IRS will issue three notices before a levy goes into effect. You have 30 days from the date of the final notice to make a pay arrangement before the agency starts docking your monthly benefits. Other agencies have similar procedures, Harman says.
Losing the levy
Once you make an arrangement with the appropriate agency to repay your debt, the Social Security garnishment is released, says Harman. In some cases, you may be able to negotiate a settlement.
“There are rules allowing all the agencies, when someone owes money to them, to make some compromises with the debtor, to set up payment plans and, in true hardship circumstances, provide some other relief,” says Carolyn Carter, deputy director of advocacy with Boston-based National Consumer Law Center.
For tax debt, you may be able to negotiate an agreement to pay less than your full bill if you are truly strapped. But be aware that the IRS has strict eligibility rules for this arrangement, called an Offer in Compromise, and charges a $150 nonrefundable fee to apply.
In the case of a tax debt, your notice of liability may not pinpoint the specific reason you owe the tax, Harman says. Finding the root of the problem may require some investigation on your part, starting with a request for a review of your files.
“There could be a situation where, for example, a homeowner had been foreclosed on in a previous year,” he says. “Most individuals don’t understand that this can be considered income when the mortgage company writes off that liability. So the individual who had their home foreclosed on can actually end up with a tax debt that they’re not aware of.”
While tax law in effect through 2012 protects some homeowners from foreclosure taxes, affected homeowners must file a special IRS form to avoid the tax.
Harman says people need to be proactive to avoid the threat of garnishment.
“They need to be aware of any potential debts that they have and be thorough when they’re sorting through their mail,” he says. “Don’t throw away any notices from any federal agencies, particularly the IRS.”
For student loan debt, Carter says you’ll have a wider range of options if you haven’t already defaulted. The National Consumer Law Center operates a website that offers information and advice for those having trouble repaying student loans. Find more information at NCLC.org.
“There are all sorts of programs for them to do what you might call workouts of their student loans — reducing the interest rates, changing the payment schedules,” Carter says. “In some circumstances, deferments are available. If the student is totally and permanently disabled or if the school closed while the student was there, and in some other circumstances, the student can get the loan discharged.”
MONEY SAVING TIP: Decide where to put that ‘payment.’
If you plan to sock money away for several years until you reach a specific savings goal, your “pay-yourself-first” money could become automatic contributions to a mutual fund or other stock-oriented fund. If you need the money to be more liquid than that, consider an online savings or money market account that gets linked to your current checking account. Many of these online-only accounts are insured by the Federal Deposit Insurance Corp. (FDIC) and pay annual percentage yields between 4 percent and 5 percent or even higher, as opposed to paltry yields of about 0.2 percent to 0.5 percent for traditional savings accounts. To find such an account, go to Bankrate.com, find the “Compare rates” section on the home page, select “Checking & Savings,” and then “MMAs/Savings Accounts.” (Just keep choosing MMAs and savings accounts as you click through.)
The important thing is that you commit to a savings plan. Delaying it or depositing your money into your everyday checking account where funds are easily accessible, won’t work.
DID YOU KNOW…that stores keep their clearance area messy on purpose?
“It’s really hard to conquer the clearance area in some stores because it’s actually designed to make you not want to spend time there,” says Kay.
Retailers know shoppers want to easily find the size, price and item neatly displayed. So they purposely create the frustration of the poorly marked and poorly organized clearance area to tempt you toward the beautifully displayed and perfectly organized full-price merchandise.
Resist the urge: “Never shop when you are rushed for time,” says Kay, “because this leads to making rash decisions.” Instead, she advises setting aside time to shop, dig and search for what you truly want, need and can afford from the clearance section.