Social Security is a federal, social insurance program designed to protect beneficiaries from loss of income due to death, disability or retirement. Supplemental Security Income ( SSI) provides benefits to aged or disabled people with limited income and resources. As such, the Social Security Act contains specific provisions to protect these benefits from creditors in order to ensure that funds are available to beneficiaries for basic necessities. In general, Social Security and SSI benefits are exempt from garnishment, attachment or other legal process, or from the operation of any bankruptcy or insolvency law.

This legal exemption from garnishment does not, however, always prevent banks from freezing accounts that contain Social Security or SSI funds as part of the garnishment process. Typically, when faced with an outstanding debt, creditors will obtain a “money judgment” from a state court (usually by default because debtors are not aware of the proceeding), use the judgment to order a bank to freeze the funds in a beneficiary’s account, and then seek to garnish the account in court. State law governs how banks must handle the garnishment process. Bank accounts are frozen to prevent debtors from taking actions such as withdrawing funds from the account. Debt collectors typically send a notice about their collection efforts to the debtor a day or two after the funds have been frozen.

Often, bank accounts held by Social Security beneficiaries do not contain funds solely from Social Security, but are mingled with funds from other, non-exempt sources. Financial institutions contend that it is difficult to trace such comingled funds in an account and to determine their source of origination. Because of the difficulty in ascertaining which funds in an account are entitled to garnishment protection, banks will often implement a garnishment order against any account holding comingled funds.

Generally, banks will not give the beneficiary a chance to prove in advance that the funds in the bank account are from Social Security or SSI benefits. For the most part, the burden is on the beneficiary to show that the funds are exempt from garnishment. This typically requires the beneficiary to hire an attorney and fight the garnishment order in court. Such legal proceedings can be expensive, confusing and time consuming, especially for a poor, disabled, or elderly person.

Even when benefit recipients are able to successfully challenge the garnishment of their federal payments, they often suffer financially from the garnishment process because of the freezing of their accounts. Many Social Security beneficiaries rely completely on their Social Security benefits to pay for their basic needs. Social Security is the only source of income for one out of five people over age 65. For two out of three people over age 65, Social Security is more than half of their income. Freezing an account that may represent a beneficiary’s principal, if not exclusive, source of income can have severe consequences. When their accounts are frozen, they have no money to pay rent, buy food, or pay other expenses.

In addition, account holders may be subject to fees and penalties associated with a freeze on their accounts, overdraft fees, and penalties for returned checks. For example, the act of freezing the account itself may generate an “attachment fee” generally between $100 and $150. Although the account is frozen and inaccessible to the depositor, the bank frequently still deducts its fees from the balance even if the account contains exempt funds. These fees and penalties can be substantial and can cause additional hardship. Even when the garnishment is properly resolved, affected accounts may be significantly depleted.


• Too often, benefit recipients do not understand their rights or their need to raise a defense during the garnishment process. Clarification of these rights and responsibilities is clearly needed. To effectively provide benefit recipients with an opportunity to exercise their rights, banks and lending institutions should provide information regarding exemptions and how to go about claiming the exemptions contemporaneously with the notification of the garnishment order.

• The National Committee supports legislative proposals to amend the Social Security Act to operate as an absolute bar against the freezing, garnishment or attachment of Social Security payments, rather than as a defense to garnishment to be raised by an account holder after being denied access to the funds as the result of a hold or freeze.

• The National Committee also supports proposals requiring financial institutions to identify electronically deposited exempt funds and freeze only non-exempt funds when they receive attachment or garnishment orders; another option would direct that all direct deposits of Social Security benefits go into a separate account of the beneficiary with no commingling of funds allowed from other sources.

• The National Committee believes it is unfair for a bank to charge customers penalties and fees triggered by an improper garnishment. Therefore, banks should be prohibited from assessing fees against accounts containing exempt funds. In the alternative, banks or debt collectors should be required to reimburse beneficiaries for penalties and fees if it has been determined that those fees were imposed against an account containing exempt federal funds.

Certain exceptions allow the collection in limited circumstances of child support, alimony and federal debt.

Government Relations and Policy, January 2012

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.