Like many younger people, older Americans are increasingly being garnished with debt collection. More than a third of complaints filed by older consumers are related to debt collection. In some of these complaints, consumers told us that debt collectors threatened to garnish their Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and veterans’ benefits, even though these funds cannot generally be garnished.
After a debt collector wins a lawsuit against you for a debt, a lien may be created. The debt collector can then ask your bank or credit union to release the funds in your account to pay off the debt.
Based on the complaints we reviewed, the threat of eliminating these benefits has caused significant distress to older consumers and veterans, especially when they rely on this income to pay for basic living expenses. We have developed a sample letter to help consumers tell debt collectors that their income will not be garnished.
We also explain how to protect your Social Security and VA benefits on Ask the CFPB. Here’s a preview:
Automatically protects Social Security and veterans benefits
If you receive Social Security or veterans benefits via direct deposit, your bank must guarantee two months of interest in your account. This means you can continue to have access to the money.
For example, if you receive $1,000 per month from Social Security, your bank will see that $2,000 of Social Security payments were directly deposited in the past two months. The bank must allow you to continue to access up to $2,000 of the funds in your account. However, if you have $3,000 in your account, the bank can freeze $1,000 of that. It should allow you to access the remaining $2,000 so that you can continue to pay bills and withdraw cash as usual.
What happens if any of your funds are frozen?
If any of your funds are frozen, your bank must send you a lien notice. Next, a judge will decide whether the frozen amount should be turned over to a debt collector based on factors such as your source of income and state law. Get help from an attorney to remind the judge that your income is protected. If you can’t afford an attorney, you may be eligible for free legal aid.
Automatic interest protection for prepaid cards
Many people receive Social Security or veterans benefits on prepaid cards. If your benefits are debited from a Direct Express Prepaid Card or other prepaid account, they are automatically protected from garnishment, just like money in a bank account.
exception
Social Security and SSDI can be garnished to pay government debts, such as back taxes, federal student loans, and child or spousal support debts. Some other means-tested benefits, such as Social Security Income, are not subject to garnishment—even to pay government debts or child or spousal support.
He learned more
To learn more, visit Ask the CFPB. You can also download a printable version of this information to share with friends or clients.
If you have a debt collection problem, you can file a complaint online or call (855) 411-2372.
