Government benefits protected from creditors

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I am on Social Security disability payments. I had a credit card with a balance of $300 in 2008. I had a heart attack in 2008, but I still intended to return to work. However, with very bad back problems and ongoing heart issues, I had to go on Social Security disability.

While I was sick, the credit card company continued to call and then wrote it off as bad debt. Now, a firm that buys collections calls, telling me I owe $765.13 with penalties and late charges. I told them I could not pay that amount and they said, "What can you pay?" I told them I was disabled and how can they now ask me for this money when three months ago they would settle for $268?

Can they now garnish my Social Security? They told me they would accept $325, but only if I sent it right now! I told them I could not pay right now because I don't receive a check until next month. Then they proceeded to say that I would have to set up a payment of $150 a month for five months, and they wanted my banking information, which I refused to give. Can they take me to court and garnish my wages? Please help! -- Viola

Answer for the expert

Dear Viola,
The law is on your side on this one. A debt collector from a credit card company cannot garnish your Social Security benefits.

In the past, this was scant comfort as once a bank received a garnishment order, it would then freeze your entire account for weeks, even months, leaving it up to you to defend which funds in the account were exempt from garnishment and which weren't. In addition,  specific laws and procedures varied from state to state, making the whole thing even more complicated.

As of May 1, 2011, however, things are simpler. New federal regulations require banks to keep track of money from electronically deposited federal benefit payments such as your disability payments. The federal government puts a "tag" on its direct deposits to you, and when the bank receives a garnishment order from the court, it must determine how much of your account is exempt from garnishment. The bank also must give you the name of the creditor, the date, and the amounts of protected and unprotected cash in your checking account.

Note this law only protects you if you have your disability check deposited electronically. If that's not the case, change it as soon as possible.

If your only income is disability payments, the collection agency might as well forget the garnishment route. Unfortunately, the unethical ones still have tricks up their sleeves: threats and scare tactics.

I'm so glad you didn't give them your banking information. That was smart. Now I want you to stop talking to them on the phone at all. It only upsets you, and as you've discovered, you have no paper trail and no way to prove they said or promised anything. Their story can just keep changing. You have nothing to gain from repeated phone conversations. And by law you are not required to.

Next time the collection agency calls, tell them to communicate with you by mail only. Ask for their address or tell them to mail it to you, if you don't have it already.

Then send them a basic cease-and-desist letter. Get a  debt collection sample letter, fill in the blanks and send by certified mail with receipt requested.

Next, determine what you can afford to pay per month on this bill, if anything. On Social Security disability payments, it's not going to be $150 per month. Make a budget, leaving a little room for those unexpected expenses that always come up. If you can afford to send $10 or $20 toward your debt, that's what they'll have to take. Tell the collection agency (in writing, of course) that's what you can afford, and that's final.

If you can't afford to pay them at all, they're going to have to give up. It happens all the time. You didn't choose to have severe health problems, and by the size of your debt, you never went on wild spending binges. You're not a financial deadbeat. Our U.S. laws, including the new law protecting disability payments from garnishment, are designed to protect honest people like you who are down on their luck.

Take care of your health first and foremost, and don't let collectors hassle you on the phone. I hope things start looking up for you soon.

See related: New rule protects exempted funds from garnishment orders, How wage garnishment works -- and how to avoid it, Debt collection sample letters, Know your rights: Fair Debt Collection Practices Act

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Updated: 04-20-2019