Consumers who do not pay off their debts as agreed are subject to collection activity from creditors, regardless of how much income they receive or the source of that income. Should the creditor's efforts fail, it will sell the debt to a collection agency or "debt buyer" that will then take over collection efforts. Debt buyers sometimes sue consumers for unpaid debts---resulting in a civil judgment. A civil judgment gives the debt buyer additional collection options.
Social Security Exemption
One common way a debt buyer can use a civil judgment to force a consumer to pay his debt is through garnishment. Judgment holders can garnish wages and sometimes also garnish bank accounts via a bank levy.
The Federal Trade Commission notes that only government agencies have the right to garnish an individual's Social Security benefits before she receives them each month. Thus, unless the debt buyer is working under contract to collect a debt you owe to the government, such as an unpaid federal education loan, it cannot garnish your Social Security payments.
Credit Impact
After the court hearing that created the judgment, the debt buyer files the judgment with the court clerk. Doing so "dockets" the judgment---making it a public record accessible by anyone---including the credit reporting agencies that maintain your credit information. The reporting agencies will add the judgment to your credit report as soon as they discover it. Courts do not directly report judgments to credit reporting agencies.
The fact that you receive Social Security has no effect on how the judgment affects your credit scores. Judgments are derogatory but, because everyone's credit information differs, the degree to which a debt buyer's judgment hurts your credit rating will also differ.
Bank Levy
The law bars commercial creditors from seizing Social Security benefits. However, that is no guarantee that a debt buyer won't attempt to garnish your benefits after you deposit them into your bank account. To prevent this from happening, notify your bank of the amount of money you receive in Social Security each month via an exemption claim form. Provided you claim your Social Security as exempt funds, your bank will not turn them over to the debt buyer should it levy your bank account.
Considerations
All collectors' regulations differ, but they don't typically sue every debtor whose account they hold. Debt buyers weigh the costs of filing and pursuing a lawsuit against the benefits of collecting the full amount. If a debt buyer knows that it cannot force you to pay off a judgment due to your exempt income, it may opt not to sue you or withdraw a previously filed lawsuit before the hearing.
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