Protecting Social Security Retirement Benefits from Creditors In One Easy Step

By: Eric Levine

In this turbulent economy, many people are finding it difficult to make ends meet. With income being stretched to the limit, some people are sometimes unable to pay bills on time or in full. When this happens, creditors are frequently pursuing payment by hiring debt collectors to recover the money that is owed them.  In some cases, creditors will go so far as to obtain legal judgments against the non-paying individuals. Afterwards, they try to recover the amount recognized in the judgment by attempting to acquire the personal assets of the persons against whom the judgment was entered. 

As creditors try to acquire a person’s assets, they can take steps leading to the freezing of bank accounts and turnover of funds in those accounts. They may place liens on both personal and real property that can result in judicial sales of such property. They may even garnish wages, which is the deduction of money directly from one’s salary.  If done correctly, a judgment by a creditor can place a stranglehold on someone’s assets until payment in full is made. 

This threat can be particularly damaging to senior citizens who may be out of the workforce or on a fixed income. It is even more harmful when one considers that a large component of most senior citizens’ income is derived from Social Security benefits. So how do you protect Social Security benefits from creditors?

The good news is that the Social Security Act expressly shields Social Security benefits from creditors, with a few very limited exceptions. This protection exists so long as the Social Security benefits are identifiable by the person receiving them.  In other words, if a creditor attempts to acquire someone’s Social Security benefits, it will be up to the recipient of the benefits to prove that the funds the creditor is attempting to acquire come from Social Security and not some other unprotected asset source.  Once that is done, a creditor who continues to attempt to acquire those assets will be in violation of the Social Security Act. 

How then does one efficiently and conclusively distinguish Social Security income from other funds? The easiest way to do this is to have the income directly deposited into a bank account funded only by Social Security benefits.  By establishing a bank account that receives funds from only one source, namely Social Security, you are in essence “levy-proofing” that money by not commingling it with other monies.  This way, you can show that the account is funded purely by Social Security benefits by simply providing a creditor with an account statement identifying the source of all deposits.

There are other benefits to having Social Security income electronically deposited into an account dedicated for that purpose. These include convenience, going “paperless” and insuring timely payment each month.  The Social Security Administration recommends having benefits directly deposited to insure payment on the first day the benefits are due even if you are out of town, sick or unable to get to a bank. The process also removes the threat of lost or stolen checks, and it even saves the Federal Government the cost of printing and mailing checks.  


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