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If you owe money to a creditor, it may obtain a court order to garnish your bank account or wages, which basically means that it can take money from these sources to satisfy the debt. But what if your income comes from Social Security or a pension? The rules can be a little tricky, so here's a quick guide.

Can my Social Security be garnished?
Usually, your Social Security can't be garnished. Retirement funds, including Social Security income, are generally protected from creditors. Specifically, up to two months' worth of Social Security benefits deposited into a bank account or on a prepaid card are off limits. For example, if you receive $1,500 per month in Social Security, your bank must protect up to $3,000 in your account from being seized, but money beyond that amount is fair game for banks to freeze under court order.

However, there are some instances when Social Security income can be subject to garnishment. If you owe money to the government, such as back taxes to the IRS or for a defaulted federal student loan, some of your Social Security income may be in jeopardy. And if you owe child support or alimony, it can also be an acceptable reason for garnishing Social Security benefits.

The harshest treatment of Social Security benefits is when it comes to unpaid taxes. Under the Federal Payment Levy Program, Social Security benefits are subject to a 15% levy to pay delinquent taxes, no matter how much income this leaves you with. For debts owed to other government agencies, such as student loans, the first $750 in benefits is off-limits. The 15% levy still applies, as long as it leaves you with at least $750 per month.

For child support and alimony, the maximum allowed garnishment is determined by state law but cannot be more than the maximum set by the Consumer Credit Protection Act. According to this rule, your Social Security benefits can be reduced by as much as:

  • 50% if you support another child in addition to the one involved in the garnishment.
  • 60% if you don't have any other children to support.
  • 65% if the child support is more than 12 weeks in arrears.

It's also worth noting that Social Security benefits paid by paper check don't enjoy the same two months' protection as direct deposits and prepaid cards. So if you want the maximum protection from garnishments, switch to one of the other payment methods.

What about my pension?
In general, pension income enjoys the same protection as Social Security benefits -- off limits to most creditors, except for government debts and child support. And pension income is protected from garnishments before it's given to you, but not after you receive it.

In other words, if a creditor obtains a court order to seize $2,000 from your bank account, the money in your account isn't necessarily protected just because it happens to have come from pension income. However, under the Employee Retirement Income Security Act, there is a rule that stops pension benefits from being assigned directly to a creditor.

The bottom line
To sum it up, if you owe money to the IRS, a federal student loan program, or for back child support, some of your Social Security and pension income can potentially be taken to satisfy your debt. For most creditors, however, sources of retirement income such as these are off limits.

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