New York Estate Planning & Elder Law Blog
More seniors than ever are carrying high debt into retirement. Managing high debt simultaneously with managing the cost of daily living and medical care on a fixed income is a recurring problem in many households. The amount of debt burden has skyrocketed over the past decade.
The National Council on Aging commissioned the Survey of Consumer Finances to study debt and how it impacts seniors economic security. The key findings are listed below:
- Percentage of households headed by an adult 65 or older with any debt increased from 41.5% in 1992 to 51.9% in 2010 and then to 60% in 2016.
- Median total debt for older adult households with debt was $31,300 in 2016.
- Leading the high debt burden are medical debt, credit card, and housing debt.
- Seniors often make trade-offs to save money in the short term that can be harmful to their long-term health and finances, such as forgoing necessary home repairs or needed car repairs and cutting pills or skipping meals.
Can a debt collector or creditor garnish my federal benefits?
Generally, debt collectors and creditors, such as banks and financial institutions, cannot garnish federal benefits. Federal law protects or “exempts” certain funds or benefits from garnishment when they are directly deposited into your bank account. You may, however, have to go to court to protect your income, if a debt collector or creditor places a lien on your federal benefits.
Federally exempt benefits include:
- Social Security benefits
- Supplemental Security Income (SSI) benefits
- Veteran’s benefits
- Civil service and federal retirement and disability benefits
- Servicemember pay
- Military annuities and survivor benefits
- Federal student aid
- Railroad retirement benefits
- Financial assistance from the Federal Emergency Management Agency (FEMA)
Note that certain federal benefits, such as Social Security, SSI, and Veterans Assistance, have additional protections under federal law when those funds are deposited into a bank account or onto a prepaid card.
Can the feds garnish your federal benefits to pay your debts?
The federal government can garnish your benefits for repayment of several types of debts, including:
- Federal income taxes
- Federal student loans
- Child support and alimony
- Non-tax debt owed to other federal agencies
- Defaulted federal home loans
- Certain civil penalties
Unpaid restitution following federal criminal conviction
In 1990, the Federal Debt Collection and Procedures Act became law. There is a provision in this statute that permits a federal court to issue a writ of continuing garnishment in connection with sentencing. If part of a federal criminal conviction includes a federal restitution order, then federal benefits can be garnished to satisfy the restitution order. Federal civil restitution orders or damages awarded in a state law claim however are protected or “exempted” from garnishment.
Be wary of debt settlement and debt relief services that promise to change the terms of your debt with your creditors. For more information contact the Consumer Finance Protection Board, a federal government agency for assistance or click the following link for additional information (https://www.consumerfinance.gov/ask-cfpb/what-are-debt-settlementdebt-relief-services-and-should-i-use-them-en-1457/).