March 04, 2021
Summary: Debt collectors have many ways to collect what you owe. But can they take your private disability payments? Find out what income and assets are protected here.
Anyone that is being sued for debt may know that wage garnishment is the result of having a judgment placed against you. If you are receiving disability benefits or Supplemental Security Income from Social Security, this may be your only source of income. If you are wondering if private disability payments can be garnished, they can. Although social security and disability benefits are protected, private disability payments are not.
It is good to note that some issues can arise if "exempt" benefits are mixed with other kinds of income. You will need to educate yourself and make sure you take proper steps to protect your private disability payments.
If you have been sued by a creditor or debt collector and you lose, the creditor will win a judgment against you. After the judgment, the creditor is then given the authority to pursue garnishment to collect the debt. Each state has a different process based on the percent, the amount, and the type of funds that are subject to garnishment.
Most often, a clerk or sheriff will issue a writ of garnishment. This is then given to your employer or other entity that provides you with income. If the garnishment order meets the legal requirements, and you do not appeal it, then the funds will be directly given to the creditor.
By federal law, Social Security and disability benefits are exempt from garnishment or bank levy. This means that the creditor will not garnish funds from its own payments. Although disability benefits are protected, private disability checks may be subject to garnishment. Whether or not your benefits are protected varies from state to state.
The Consumer Credit Protection Act has a nationwide legal limit on garnishment. This is up to 25 percent of disposable earnings or the amount of which earnings exceeds 30 times the minimum wage amount (whichever is less). Private disability benefits are considered earnings.
When it comes to debt, there are many different types of creditors. There are specific exceptions when it comes to garnishment, and this is in relation to child support collection agencies and the federal government. If you owe money to the IRS, your Social Security disability payments can be garnished.
The limit on these tax garnishments is 15 percent of the total payment and applies to student loans as well. Any other government creditors other than the IRS may not touch the first $750 of a monthly disability benefit.
Supplemental Security Income allows disabled individuals to obtain monthly benefits. As of 2015, the social security income is at $733. This program is not open to anyone who earns more than a specific amount or has a specific amount of assets. Because these benefits are made for people with little money, federal law bars garnishment on SSI benefits.
If you are involved with an unpaid debt lawsuit and you lose, then you may be subject to a bank levy. This is similar to wage garnishment, but not the same thing. Essentially, instead of taking money from your wages, money is diverted to a creditor through your bank account until the debt is satisfied.
Federal law also protects some payments from bank levies. This includes:
If you want to protect these exempted funds, you must tell your bank of the source of these funds. If you mingle these funds with other non-exempt funds, there is no obligation for the bank to identify the funds. The bank can transfer any funds in the account to the creditor, up the judgment amount. They do not need to notify you at all, and you may only find out after it has happened.
Although all checking and savings accounts are subject to a bank levy, retirement accounts can be protected. These accounts are protected under the Federal Employee Retirement Income Security Act. Employers also set up these accounts. Therefore, a beneficiary of an ERISA account cannot lose their right to those assets.
If you are going through a debt collection lawsuit, or you have a judgment placed against you, your assets, wages, and bank accounts may be garnished. Know your rights, and know which assets are protected by law.
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Here's a list of guides for other states.
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Need more info on statutes of limitations? Read our 50-state guide.
Need help managing your finances? Check out these resources.