Is Social Security At Risk In Bankruptcy?

Social security safe in bankruptcy

Can “they” take my Social Security check? is a frequent worry of the elderly.

Whether the “they” is creditors or a bankruptcy trustee, Social Security is an essential lifeline for many.

You can relax.

Federal law, applicable everywhere,  makes your Social Security benefits exempt from levy, garnishment, or assignment by regular creditors.

That means that even a creditor with a judgment cannot intercept your Social Security payments nor can they take the money from you after it has been paid to your account.

Recent regulations require a bank that receives a levy to take certain steps to make sure that Social Security benefits are not paid out in a collection action.  31 C.F.R. 212.

You can make it easy to identify your Social Security income by not depositing money from any other source into the account.  Make that account only Social Security.

Social Security in bankruptcy

The protection for Social Security extends into bankruptcy.

Money that can be traced to Social Security is either exempt or some cases say it never becomes property of the bankruptcy estate.

Likewise, social security income is  excluded from the income calculations in the means test.  Further, a 9th Circuit appeals court held that the good faith requirement in Chapter 13 did not require debtors to spend their Social Security income funding a reorganization plan.

The Feds are an exception

The federal government can withhold some part of Social Security payments for taxes or student loans, or to pay family support, however. Read the statute.

Other exemptions

In addition to the federal exemption for Social Security benefits, each state has law protecting certain assets from the individual’s creditors.

Here’s  California’s protection for Social Security direct deposit. These exemptions are available without filing bankruptcy.

Most retirement plans, pensions, and 401(k) plans are also exempt from collection before distribution.

Resist over-aggressive collectors

If you fall behind on your bills, collectors will use stress, fear and shame to get you to pay them, without regard to the other demands on your budget.

Yet often, older or disabled persons are  immune, as a matter of law, from collection of debts through the legal process.

If you look at what you own and your sources of income, it may be that everything you have is exempt.  In that case, even if an unpaid creditor sued you, got a judgment and tried to use the law to collect its money, that creditor will get nothing.

So, resist being pressured to pay money just because a bill collector says you “have to”.  Know what part of what you own is protected from your creditors.

Read more

Debt and the elderly

“E” is for exemptions

What if you are sued?

Image courtesy of 401K.

About the Author
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.