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Can a credit card issuer garnish your Social Security benefits?

Social Security benefits are protected from garnishment, but the bigger issue is figuring out how to pay off credit card debt with little income

Summary

Your Social Security check cannot be garnished for credit card debt. Credit card debt is unsecured debt; Social Security income can be garnished for certain other debts, such as delinquent taxes and federal student loan debt, but not for unsecured debt.

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Dear Keeping Score,

I have a question regarding my parents’ debts. Both together have $10,000 debt on credit cards and they are receiving supplemental security income (SSI). This is the only income they have. They don’t have any assets and homes. Unfortunately, my mom had a stroke on June 15 and had two complicated major surgeries and she is still in the hospital since June.

The Social Security office stopped my mom’s SSI and my dad cannot afford all the payment. My question is if he stops payment can the creditor garnish his Social Security benefits? Thanks. – Arsineh

Dear Arsineh,

I am sorry to hear about your parents’ troubles. While I don’t know why the Social Security office would have stopped your mom’s SSI after she had her stroke, I do suggest that your dad or her representative get in touch with them and find out why this happened.

No, your Social Security check cannot be garnished for credit card debt. Credit card debt is unsecured debt; Social Security income can be garnished for certain other debts, such as delinquent taxes and federal student loan debt, but not for unsecured debt.

Check out all the answers from our credit card experts.

Ask Steve a question.

For my readers unfamiliar with SSI, the monthly payment amount for the SSI program is based on the federal benefit rate (FBR). In 2019, the FBR is $771 per month for individuals and $1,157 for couples. SSI benefits are available to low-income individuals who have either never worked or who haven’t earned enough work credits to qualify for Social Security disability insurance.

I would certainly not suggest that your dad simply stop paying on this debt as a first solution. That may only make a bad situation much, much worse. Since all his income is from Social Security, it is normally protected against claims of creditors. This is known as being judgment proof.

But there are subtleties to be aware of. While all Social Security benefits are protected from garnishment for credit card debt, the same may not be true for the bank account in which they are deposited. Here’s why: if your parents’ SSI payments are not direct deposited into their bank account, or if the SSI funds reside in the same account with other savings, they may not be fully protected.

Writing for the legal site Nolo, attorney Patricia Dzikowski says, “A creditor can still have your account frozen by serving the bank with a garnishment or attachment and, if you don’t respond to claim your exemptions, the funds can still be paid over to the creditor.”

If your parents have direct deposit, then the bank must make sure they have access to two months of Social Security benefits. The remainder may then be taken.

See related:  Credit score impact of ignoring card debt while living on Social Security income

Safe from garnishment? You still must tackle card debt

Although the possibility of losing any money is a concern, my bigger worry is the $10,000 in credit card debt. That is a lot of debt for a household receiving SSI.

First and foremost, your parents must stop using credit cards to make purchases. Balances due to outspending your income are carried from month to month with hefty interest charges, and they will snowball as your parents have learned. Going forward they should pay with cash or checks and not plastic unless they use a card that has no balance and can be paid in full each month.

Since their situation is dire, if there was ever a time to plead for a hardship arrangement with their creditors, I would say that now is the time. For that reason, I would suggest your dad reach out to the credit card companies and see what help they can offer. If this is done before the account becomes delinquent, his chances of receiving some assistance from the credit card company will be greater.

Creditors have programs set up for customers who fall on hard times and are sincere about doing their best to repay what they owe. You need to know that these programs are generally fairly short-term, in the six months to one year range. During that time, payments and interest rates may be reduced. This may be enough to get him through until your mom recovers.

But it may not. So he needs to be careful about agreeing to something that he may not be able to follow through with. Paying off $10,000 in debt in one year, even at substantially reduced interest rates, would still be in the $900 to $1,200 a month range, and I doubt that your dad has that kind of money available to throw at this debt without help from family or selling some assets.

Before making the call, he should have a good handle on exactly what his monthly expenses are going to be moving forward and how much he could reasonably pay on the debt. Armed with that information, he could call and ask for the hardship department. Once he has been connected to a hardship specialist, he will need to explain the situation in detail.

See related:  I’m disabled and I have $10,000 in card debt. Should I consider debt settlement?

Consider contacting a nonprofit credit counseling firm

One additional word of caution is that if your dad were to enroll in a hardship program with his creditor and then tries to go the debt management plan (DMP) route (see below), it would probably not work out for him. Creditors will only go so far to help their customers.

A better solution might be to contact a nonprofit credit counseling organization. It will help your parents understand all their options and provide them with a spending plan and perhaps a DMP. These plans are designed to pay off debts in five years or less, at substantially reduced interest rates.

The monthly payment on this kind of plan would probably be in the $188 to $210 range. (Check out the handy payoff calculator here to see how this might work.)

To find a qualified credit counselor, I always suggest contacting the National Foundation for Credit Counseling. These are all good people who are trained to find the best solutions to problems just like the ones your parents are facing.

The beauty of credit counseling is they will work with your dad to do what I said in the beginning – figure out exactly where he stands with regard to the amount of money that must go out each month. The counselor can make suggestions for finding additional funds through budget cuts or other means. They will also go over all of the options available for taking care of this debt.

He needs to know that there may be other options besides paying or not paying and he will need to know all of those in order to make an informed decision. I wish you all good luck.

Remember to keep track of your score!

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