July 22, 2014

Social Security Benefits, Bank Account Levy and Bankruptcy

One of the areas of law that generates a lot of questions to me in the form of emails, blog post comments and phone calls relates to Social Security benefits.  Can they be seized by a judgment creditor?  by a student loan creditor?  are Social Security benefits protected in bankruptcy?  Here is my understanding of the law.  I will update this page as I consolidate my knowledge.  I invite corrections and requests for clarifications from readers, especially my fellow lawyers.   This blog post does not, of course, constitute legal advice and you should seek counsel in your jurisdiction for answers to specific questions about your case.

Section 207 of the Social Security Act (42 U.S.C. Section 407) provides as follows:

  • The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.
  • No other provision of law, enacted before, on, or after the date of the enactment of this section may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section.
  • Nothing in this section shall be construed to prohibit withholding taxes from any benefit under this title, if such withholding is done pursuant to a request made in accordance with section 3402(p)(1) of the Internal Revenue Code of 1986 by the person entitled to such benefit or such person’s representative payee.

Garnishment/Levy

I read Section 207 to mean that a judgment creditor (i.e. a credit card lender) cannot seize funds directly from Social Security or from a bank account that came from Social Security payments.

Possible exceptions:

  • Child support
  • Student Loans
  • Past due tax debt
  • Overpayment of benefits by Social Security
  • Debts owed to other federal agencies

Potential problem areas

  • Accounts containing co-mingled funds
  • Differences in treatment of Social Security disability and Social Security retirement
  • Effect of voluntary transfer of Social Security payments pursuant to a divorce decree
  • Difference in treatment of SSDI and SSI payments

Bankruptcy

Bankruptcy “exemptions” cover which assets may be sheltered as part of a bankruptcy filing.  The applicable exemption law that applies in your case depends on your current residence, but could relate back to a former residence if you recently moved across state lines.  Long-time residents of Georgia will be subject to the exemption law that is contained in the Official Code of Georgia.  I read the Georgia exemption statute as sheltering your right to receive future Social Security benefits, and protecting already received benefits to the extent reasonably necessary to provide support and maintenance to the debtor or any dependant of the debtor.

Potential problem areas

  • Lump sum Social Security benefits received prior to filing bankruptcy that have been sitting in your bank account (see discussion of Carpenter case)
  • Lump sum Social Security benefits (representing past-due payments from prior months) that come into your bankruptcy estate after you file
  • Differences in treatment of Social Security disability and Social Security retirement
  • Social Security benefits (on-going or already received lump sum) that were voluntarily transferred from the claimant to an ex-spouse or child as part of a divorce settlement
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Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

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