Most people who receive Social Security disability (SSDI) payments are living from one paycheck to the next. Unfortunately, sometimes the disability payments are not enough to cover all the bills they have accumulated. Because of this, sometimes people who are receiving SSDI are threatened with garnishment by creditors for debt repayment. Thankfully, there are several ways you can protect your SSDI from garnishment. Here's what you need to know.
Set Up an Electronic Transfer Account
If you are currently receiving your SSDI payments on paper checks, there is no way for your bank to verify and protect your SSDI payments from garnishment. If your bank receives notification from the court system that your wages are being garnished, they will be obligated by law to allow the garnishment to go through. However, if your SSDI payments are direct deposited into an electronic transfer account, they cannot be garnished for 60 calendar days.
Set up an electronic transfer account at a bank for your SSDI payments to be direct deposited into. The bank will keep track of the deposits from the Social Security Administration for a revolving 60 day. During each 60 calendar day period, your bank will automatically disallow garnishments of the protected amount of your SSDI payments. If your balance is greater than the SSDI deposits in the last 60 calendar day period, the overage may be subjected to garnishment.
It's a good idea to set up a separate bank account for the electronic transfers of your SSDI payment. You may find it easier to keep track of what monies are exempt from garnishment if you do not deposit any other funds into this account.
Important note: Do not transfer the SSDI funds from this account to another account. If you do, the bank will not know the funds originally came from your SSDI payments.
File Chapter 7 Bankruptcy
Your SSDI payments are protected when you file a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, a trustee will sell off your non-exempt assets to pay off your debt. In a Chapter 13 bankruptcy, you may be required to make payments towards your debt by using your SSDI payments, depending on the laws of your state. Speak with a lawyer for more specific state law requirements for your particular location.
If you have received a lump sum SSDI payment, you may need to show proof of where those monies are. For example, if your lump sum payment came in the form of a paper check and you deposited it into your checking account, you will need to show documentation to your bankruptcy trustee regarding the deposit. Also, you will need to show documentation if you transferred the funds from the original account to a different account.
Important note: Consider opening a special needs trust if you have any of a lump sum payment remaining. To do this, you will need to appoint a trusted person, such as a family member or financial advisor, to control the funds in the trust. However, make sure you disclose this information to your bankruptcy trustee.
The federal government is permitted to garnish SSDI payments for cases such as unpaid federal taxes and student loans. Also, child support and alimony arrears may be garnished by your state. Speak with a social security disability attorney for a detailed list of what can be garnished from your SSDI payments in your state.
Protect your SSDI payments from garnishment by setting up an electronic transfer account and filing for Chapter 7 bankruptcy. Do not transfer funds from your electronic transfer account to another bank. Speak with a bankruptcy attorney or your case manager at your local Social Security Administration's office for more information.