What Debt Collectors Don’t Want You to Know: How to Protect your Social Security Disability Award Money from Creditors

By Adam J. Allegro, Esq.

After discussing this issue with many of my clients over the past few months, I feel it is important to let anyone currently receiving or expecting to receive Social Security Disability Insurance Benefits know a secret that most debt collectors and creditors do not want you to be informed about. Namely, that your monthly SSDI award payments and your lump sum retro benefits are generally immune from garnishment by most creditors and debt collection organizations. In fact, federal law clearly provides that it is illegal for these funds, as well as several other sources of federally awarded funds, to be touched.

As Sir Francis Bacon once wrote “knowledge is power.” By informing yourself about this protection, you will understand why threats from your creditors of garnishing money in your bank account, getting a legal judgment against you to pay a debt, or otherwise seeking methods to take away your social security disability funds are not only false but also illegal.

However, there are three key issues to also be aware of to assure your SSDI funds are protected:

• First, Federal law may protect against SSDI garnishment and seizure by most creditors, but not from state or federal governments or in cases where exceptions apply. For example, if you owe child support arrearages, overdue or unpaid taxes, and other debts which may be owed to the federal government or an agency thereof, they can often still be garnished or seized. However, credit card companies, and most other private creditors, will generally be prohibited from seeking your SSDI payments;

• Second, many SSDI award recipients place their award funds in a bank account, either through direct deposits sent by the Social Security Administration or by cashing SSDI award checks with their bank. It is important to note that the best way to protect your SSDI award money is by allowing the federal government to directly deposit SSDI money into such an account, as the bank will be required to protect this money from any type of garnishment or seizure (aside from parties mentioned in exception #1) for 60 days following direct deposit. However, this automatic protection will not occur for money kept in an account for greater than 60 days. Regardless, even if 60 days have elapsed, the money from SSDI payments are still prohibited from seizure by private collectors, but a Judge may order the bank account frozen until the SSDI recipient can prove that the funds in an account are actually SSDI award money;

• Finally, if you have SSDI money in an account where you also store other money, this may create confusion if a creditor wants to freeze your bank account and garnish money. If all money in an account is for SSDI, it will be much easier to verify this and quickly unfreeze an account and prevent a creditor from attempting to garnish these funds, but if the account has both SSDI and other unrelated money in it, you will likely have to prove to what portion is SSDI money vs. what is not before the account will be unfrozen. So, keeping a record of SSDI funds that you have received is also very beneficial.

In conclusion, knowing that your SSDI award money is generally protected from garnishment/seizure is very important in assuring that you do not fall victim to illegal conduct on the part of predatory creditors and debt collectors. However, to truly protect your SSDI income, it is best to set up a bank account designated solely for SSDI money and to make sure that the Social Security Administration is aware of this account and has your permission to directly deposit SSDI funds into it.

I hope this information is helpful to all of you current and future SSDI award recipients.