Social Security Retirement & Creditors

Your creditors expect payment from you even when you live on a limited income. If your Social Security retirement income is less than you received while working, how you will pay your creditors is a question you must consider during the retirement-planning process. If you do not submit voluntary payments to your creditors, however, their collection options are limited once you retire.

Debt Recovery

Creditors that cannot procure voluntary payment from a debtor often file lawsuits to gain the legal right to seize the debtor's assets. The most common type of seizure is garnishment.

Creditors with a court judgment can garnish both bank accounts and wages -- but certain exceptions apply. Provided your creditors are individuals or private companies, they do not have the right to garnish your Social Security payments from either the Social Security Administration or your bank account.

Government Creditors

The limitations creditors face when attempting to garnish Social Security payments apply only to private companies. The U.S. government reserves the right to garnish your federal benefits before extending them to you. Therefore, if you owe a debt to the Internal Revenue Service (IRS) or defaulted on a federal student loan, the government agency you owe can and will garnish your Social Security payments. The government's right to garnish your Social Security applies to both the Social Security Administration and bank accounts.

Consumer Warning

While private companies cannot seize your Social Security for a debt, they can use a court judgment to pursue other assets. If you own a home, your creditor can place a lien against your home after suing you. The property lien your creditor holds prevents you from refinancing the property and, in many cases, selling it, until you pay off the debt in full.

Creditors can also freeze your Social Security payments within your bank account -- leaving them inaccessible to you when you need them. You can unfreeze frozen Social Security benefits by notifying your bank of your exemptions via a bank garnishment exemption form.

Additional Considerations

Losing a lawsuit to a creditor has consequences even if the creditor cannot successfully force you to pay off the debt. The creditor's judgment appears on your credit report and subsequently lowers your credit score. While many creditors threaten to sue as a means of procuring payment, not all follow through with these threats. A creditor has little incentive to file a lawsuit against you for a debt if it cannot collect the debt by seizing your assets. Should you receive notification of an impending debt collection lawsuit, notifying your creditor that you live on Social Security retirement benefits sometimes results in the creditor dropping the case against you -- helping you avoid a damaging judgment.