Debt and Bankruptcy Considerations for Social Security Recipients

As of last year, nearly 57 million people were receiving some form of Social Security assistance, whether for old age or disability.

Those figures are expected to continue to rise as the baby boomer generation ages.
Also, as of last year, about 39 percent of Americans had some type of credit card debt, totaling an estimated $793 million, according to the U.S. Federal Reserve.

Our Louisville bankruptcy lawyers know that, inevitably, some of those who carry credit card debt are also receiving some type of Social Security. These individuals, living on a tightly-fixed income, are often vulnerable to any fluctuations in their payments. That means if an emergency crops up or their interest rate spikes, these are the folks who are going to be among the first to struggle to keep up on those payments.

These folks may also be more likely to turn to a credit card for help in a financial bind. Being either retired or disabled, it’s not as if they can simply pick up some overtime hours at work to make up the difference. Unless they have a significant savings or family members willing to help, they could be in financial trouble.

One bit of good news is that, generally speaking, credit card companies can’t garnish your Social Security payments. This is important because such income is often a critical lifeline for people.

Now, that being said, if a creditor secures a court judgment against you compelling you to pay, the court could allow for your bank accounts to be garnished. The Department of Treasury has recently implemented some regulations that require banks to protect garnishment of federal benefit payments that are direct-deposited into your bank account. The only exception would be if it’s the government you owe.

So banks are supposed to review the garnishment order and make sure that your federal benefits are not affected.

However, that doesn’t mean mistakes aren’t made, and fighting to have them righted can be a long battle. That’s why we would typically suggest that you have a separate bank account solely for direct deposits of your federal benefits. That way, there can be no room for confusion.

But how can we avoid getting to this point in the first place?

Again, we understand that emergencies happen. If it’s at all possible, it’s best to be prepared for those by having contingency funds in place for just that sort of thing.

However, barring that, you may want to consider challenging the credit card company. There has been much controversy in recent months regarding the validity of credit card debt. For example, the state of California is suing JPMorgan Chase for flooding the state’s court system with credit card debt lawsuits for which the bank couldn’t verify either the debt amount or the individual who owed it.

An astronomical percentage of credit card debt lawsuits are won by the credit card company plaintiffs in default judgments because the defendants never bothered to show up to court. Simply challenging one of these firms in court may be enough to get them to back off, which means hiring a lawyer to do so may actually be cheaper than if the company wins a default judgment against you.

Alternatively, if your debts are considerable and the judgment has already been secured, you might consider filing for Chapter 7 bankruptcy. This will wipe out almost all of your debt obligations and ultimately allow you to breathe easier.

It’s worth noting that Social Security over payments can also be discharged in a bankruptcy, so long as those over payments weren’t obtained as a result of fraud.

If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.

Additional Resources:
Can Social Security be lost to debt? March 12, 2012, By Steve Bucci,
More Blog Entries:
Living Paycheck-to-Paycheck? You Aren’t Alone, June 18, 2013, Louisville Chapter 7 Bankruptcy Lawyer Blog

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