Brenner: Social Security off limits to most creditors

Brenner: Social Security off limits to most creditors

Lynn Brenner | Family Finance
October 12, 2008
As of the 2007 tax filing, I owe the government some money. If I elect to start to receive my Social Security benefit, will I get the check, or will the Internal Revenue Service take it to pay down my debt?

The IRS is one of the few creditors that can seize part of your Social Security benefit. Your benefit can also be garnished to cover unpaid child support and alimony, but that's about it. Not to worry, though. You're not even close to that calamity.

First, a general word of reassurance. Social Security is protected from virtually all creditors, including credit card issuers, mortgage lenders, auto loan companies and collection agencies.



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In fact, it's illegal for creditors even to threaten that they may seize your Social Security benefits, says John Ventura, a bankruptcy attorney and the author of "Stop Debt Collectors" (2008, Credit.com), an extremely useful little book that offers a wealth of practical advice and provides sample letters to send to debt collectors, including one stating that your Social Security income is legally protected.

Unpaid taxes are in a special category. The IRS has the option of levying up to 15 percent of a monthly Social Security benefit until your back taxes are paid. But that's a last resort and it doesn't happen without plenty of warning and a formal legal process. The Social Security Administration garnishes benefits in response to a court order, says Jane Zanca, an agency spokeswoman: "We have to be notified that there's an appropriate levy."

Your 2007 tax bill is only a few months overdue. You've probably received a notice about it, says Dianne Besunder, an IRS spokeswoman. You should call the IRS at the telephone number on that notice and arrange to make monthly installment payments. Taxpayers who owe less than $25,000 can set up an installment agreement through an online application at irs.gov.

The Sept. 14 column, which explained a little-known strategy for taking Social Security benefits, drew an unusually high volume of questions from readers. I'll address them in future columns.

Meantime, here's a footnote to that column:

As I explained, if you're divorced, currently unmarried and at least 62 years old, and your marriage lasted at least 10 years, you can collect a benefit based on your ex-spouse's earnings even if he or she is not yet collecting Social Security. (When you apply for the spousal benefit, your ex must at least be eligible to receive Social Security - be at least 62 years old.)

But you must have reached your full retirement age to restrict your application to your spousal benefit alone; then at age 70, you can switch from your spousal benefit to a benefit based on your own work record.

Here's an example: At 62, Jenny Smith can file for a spousal benefit based on her ex-husband Fred's work record. Since she hasn't yet reached her full retirement age, at the same time she'll automatically be considered to be applying for her own benefit - the one based on her work record. The result: She'll receive the larger of the two.

But Jenny wants to postpone taking her own benefit until she's 70 because the delay will increase that benefit by 32 percent. (Your benefit is 8 percent bigger for each year you delay taking it after your full retirement age.) So she waits until she is 66 - her full retirement age - to apply for her spousal benefit. She can now exclude her own work record from her application. The result: She'll collect her spousal benefit until she turns 70. Then she can apply for, and switch to, her own benefit.

Send questions to Family Finance, Business Desk, Newsday, 235 Pinelawn Rd., Melville, NY 11747-4250, or e-mail to Bfamfin@aol.com. Include your age, income and a list of major assets. Letters and e-mails can't be answered personally.

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These same rules apply to veteran compensation checks as well as SSD payments they can and will take 15% to collect federal debts, back taxes, money owed to federal agencies and they can take 15% of both checks if you receive both SSD and VA Comp

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