
Social Security’s
new rules requiring all beneficiaries to set up direct deposit could create significant problems for beneficiaries who owe money to creditors. Protected Social Security funds that are co-mingled with other monies will likely lose their protected status and could be seized by creditors.
Federal law provides that Social Security payments are
exempt from garnishment from civil creditors. If, for example, a credit card lender sues you and obtains a judgment, that creditor cannot ask Social Security to withhold funds from your government check. The only exceptions to this rules involve:
- tax debts owed to the IRS
- child support debt
- all claims (including tax and child support) against SSI money. SSI is considered a welfare payment and not subject to seizure by anyone.
Social Security money that is co-mingled with non-Social Security money, however, may lose this special protection.