Can Disability Be Garnished for Credit Card Debt?

Disability benefits provide a financial lifeline for many individuals unable to work due to health conditions. A common concern is whether these benefits can be taken to satisfy outstanding debts, particularly credit card debt. While federal laws generally safeguard these funds from private creditors, garnishment can occur under specific circumstances and for certain types of debt.

Understanding Federal Protections for Benefits

Federal law provides significant protections for certain disability benefits, generally shielding them from garnishment by private creditors, including credit card companies. This protection is rooted in the principle that these funds are meant to cover basic living expenses for beneficiaries. It ensures individuals with disabilities maintain a minimum level of financial support, preventing severe hardship from consumer debts. These funds are exempt from collection efforts for most commercial obligations, even if a creditor obtains a court judgment. This means protected benefits are safe from actions like bank levies initiated by private entities.

Specific Disability Programs and Their Protections

Different disability programs offer varying levels of protection against garnishment for credit card debt.

Social Security Disability Insurance (SSDI) benefits are generally protected from garnishment for consumer debts like credit card debt, medical bills, and car loans under federal law. This program provides monthly benefits to workers unable to work due to a significant illness or impairment who have contributed to the Social Security system.

Supplemental Security Income (SSI) benefits offer even stronger protection. SSI is a needs-based program providing cash payments to disabled adults, children, and individuals aged 65 or older with limited income and resources. SSI payments cannot be garnished for private debt, including credit card debt, as they cover subsistence-level needs.

Veterans Affairs (VA) disability benefits are also largely protected from garnishment by creditors for private debts like credit cards, personal loans, and medical bills. This protection recognizes these benefits as compensation for service-connected disabilities.

When Benefit Funds May Be Vulnerable

Despite strong federal protections, disability benefits can become vulnerable in certain situations.

Commingling Funds

One common vulnerability arises when protected funds are mixed with other, unprotected funds in a bank account. While banks must protect at least two months’ worth of federal benefits if directly deposited, mixing funds can make it difficult to identify the protected portion, potentially exposing the entire account to seizure.

Non-Credit Card Debts

Disability benefits are also subject to garnishment for specific types of non-credit card debt. These include certain federal debts, such as overdue federal taxes, defaulted federal student loans, and other debts owed to federal agencies. The IRS can garnish up to 15% of SSDI benefits for federal tax arrearages, and the federal government can withhold up to 15% for defaulted federal student loans, though a minimum of $750 monthly is protected. Child support and alimony obligations can also lead to garnishment of SSDI and VA benefits, with potential garnishment rates ranging from 50% to 65%. SSI benefits, however, are exempt from garnishment for child support or alimony.

Responding to Collection Efforts

Individuals receiving disability benefits who face collection attempts for credit card debt should understand their rights. Federal law largely protects these benefits from private creditors, meaning credit card companies typically cannot garnish your Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), or VA disability payments. Even if a credit card company sues and wins a judgment, your protected benefits are generally exempt from seizure. If a debt collector contacts you, inform them that your income consists of protected disability benefits. You have rights under the Fair Debt Collection Practices Act (FDCPA), which prohibits collectors from harassment and requires them to cease contact if you request it in writing. If a bank account holding your benefits is frozen due to a garnishment order from a private creditor, banks must protect an amount equal to at least your last two months’ worth of federal benefit deposits. If a creditor attempts to garnish protected funds or if you are unsure about your situation, seeking legal assistance is advisable. Legal aid organizations or consumer protection attorneys can offer guidance on how to assert your rights and challenge improper garnishment attempts, ensuring your benefits remain protected.