Dear Liz: In the past, we’d heard that a bank account could be protected from creditors, U.S. Bankruptcy Court and other government authorities if it were set up to receive only Social Security funds.
For several years, we thought we had such an account, but now the bank denies that such protection is possible. We’re not facing any lawsuits or other problems, but we do wish to protect this money in the event of a catastrophe. Could you discuss this issue?
Answer: You can protect your Social Security income from most creditors, but it’s up to you not the bank to take the proper steps, said Lowell Kepke, a Social Security Administration spokesman.
“Banks generally will not have any special kind of account just for Social Security payments,” Kepke said. “It is up to the customer to maintain the account with only Social Security deposits.”
Specifically, you have to arrange for Social Security to electronically deposit your checks into the account and make sure you don’t mingle that money with other kinds of payments or deposits.
Social Security benefits are generally protected against garnishment, levy or bankruptcy proceedings as long as money is “still identifiable as Social Security benefits in a bank account where the only payments into the account are from direct deposit,” Kepke said.
There are some exceptions to the creditor protection, Kepke notes:
- The Internal Revenue Service can seize an account to collect unpaid federal taxes.
- The account can be garnisheed to enforce child support or alimony obligations.
- The state can be reimbursed for interim assistance to Supplemental Security Income recipients. (SSI is the Social Security disability program.)
Also, the protection may not prevent a creditor from trying to raid your account it just provides a remedy in case such an attempt is made.
If a creditor gets a judgment against you in court, for example, and asks the bank to freeze your account, you may have to contact the creditor’s attorney to get the funds released. Your bank statements showing Social Security as the only source of funds in the account should be proof that the account is protected. If the attorney balks, though, you may have to go to court to reverse the freeze.
Given what’s at stake, you may want an attorney’s help if you should ever face the catastrophe you fear. Your local bar association can provide referrals.