It usually takes many months—sometimes years—to get a Social Security disability claim approved. Going that long with little to no income causes serious financial hardships for some, leaving them with a pile of past-due bills and creditors threatening garnishments.
If you've been waiting for your Social Security disability to come through, you might wonder how you'll keep your creditors from seizing those benefits once Social Security approves your application. The truth is, whether your disability benefits can be seized to pay your debts depends on several factors, like:
This article will explain when your Social Security disability is protected from creditors and when it's not, and what you can do to protect your money.
No. Generally, a bill collector can't garnish your Social Security disability benefits. SSDI (Social Security disability insurance) benefits are exempt from creditors' collection efforts—with a couple of exceptions.
The federal government can garnish your Social Security disability benefit to recover money it's owed, like:
SSI (Supplemental Security Income) benefits are completely exempt from collection efforts. Because SSI is a needs-based program, it's assumed that anyone receiving SSI benefits has no extra money. Consequently, these benefits are fully exempt from seizure—meaning your SSI benefits can't be taken to pay any of your debts, including child support or unpaid taxes.
Banks used to be allowed to comply with court orders for garnishment by freezing money in an account without checking where the income came from. But a federal law passed in 2011 requires banks to review accounts before garnishing money to see if Social Security funds have been deposited in the account.
Under the law, the bank can't garnish or freeze money that Social Security deposited directly into your account within two months of the garnishment order—unless the garnishment is for back child support or one of the other exceptions. But the bank can (and will) freeze any money you have in excess of your disability payments.
If your bank freezes money in your account, it must send you a notice of garnishment. The notice will explain how you can respond and let the bank know that your account contains government benefits. It's important to follow those instructions; a judge will decide whether your money can be garnished and will partly base the decision on where the money came from.
For more information, see Nolo's article on Protections for Social Security Funds in Bank Accounts.
If you think a garnishment order might be filed against you, you can protect your Social Security disability money by filing a document with the court stating that your income is protected from creditors. And here are some other things you can do to protect your disability benefits from creditors.
Use direct deposit. Have Social Security deposit your benefits and back pay directly into your bank account. The bank isn't allowed to freeze the last two months of Social Security direct deposits. But the bank can freeze any disability benefits you receive in the form of a check and deposit yourself, at least until you claim and prove your right to have the funds released.
Keep your Social Security in a separate account. Don't mix your disability payments with your other funds. Having your SSI or SSDI benefits deposited into a separate account and spending your benefit money directly from that account can make it much easier to prove that the account only contains exempt funds.
Avoid transferring SSI or SSDI funds. Don't transfer your Social Security disability benefits to different accounts. Although your bank has to protect your last two Social Security deposits, it doesn't have to (and isn't allowed to) track down where transferred funds came from.
The burden of proving the funds in your account(s) are from Social Security is on you. So, if you must transfer them, you'll need to keep good records.
Don't have SSDI or SSI benefits deposited to banks where you owe money. Don't keep your Social Security benefits in a bank or credit union where you have your car loan or mortgage. Although the bank isn't allowed to take exempt funds (like Social Security benefits) from your account to cover past-due payments for these debts, mistakes can happen—especially if you mix other funds with your SSI or SSDI.
Talk to your bank. If your bank account is frozen and it contains Social Security disability or SSI payments, ask the bank to lift the freeze and release the money to you. You can also ask that any NSF fees (insufficient fund fees) that result from the freeze be waived or refunded.
Get help if you need it. Despite the rules, Social Security disability and SSI money are sometimes illegally garnished or levied from bank accounts. If your account is frozen and the bank won't release your Social Security benefits, you should speak with an attorney. A lawyer might have more success dealing with the bank, and you'll need one if you have to go to court to get access to your money.
SSI benefits are always protected—even in bankruptcy and even from the federal government. And most of the time, your monthly SSDI benefit payments won't be affected by your bankruptcy.
Federal bankruptcy law exempts disability benefits received under the Social Security Act—including SSDI. And while federal bankruptcy exemptions can't be used in all states, many states' laws also protect disability payments, excluding them from the bankruptcy estate.
But debts that can't be discharged through bankruptcy, like child support, can still cause your monthly SSDI benefits to be garnished (see above).
For more information on bankruptcy exemptions, see Nolo's article Can I Keep My Disability Payments in Chapter 7 Bankruptcy?
Once your disability benefits are approved, Social Security will pay you for all the months you had to wait for a decision. Generally, these back payments are issued in a lump sum that is deposited directly into your bank account. But what happens to these funds if you declare bankruptcy?
All SSI benefits, even lump-sum back payments, are protected from seizure. They can never be taken by a bankruptcy court or creditor.
But the rules for SSDI are different. Your lump-sum payment for SSDI back pay might not be as safe.
In some states, SSDI back pay is exempt from being taken in bankruptcy, while in other states, you can only protect some of this money from the bankruptcy trustee and your creditors. Certain states only allow amounts necessary for your basic needs to be protected in bankruptcy, and a bankruptcy court may find you don't need all of a large lump-sum payment for your support.
Updated May 3, 2023