While the reasons that motivate a person to file for bankruptcy vary widely, one of the most common is to protect an asset. Depending on the nature of the asset, unpaid creditors may try to access it through either garnishment or seizure. Cash assets, including wages that will be paid and bank accounts, can be taken by creditors through garnishment. However, the source of the cash asset can actually serve to protect it, like if it comes in the form of Social Security benefits.
Anyone who receives Social Security benefits is typically not subject to having those benefits seized. However, this protection is not absolute. Certain debts owed to the Federal government may result in garnishment by specific governmental entities, such as the IRS. Also, delinquent child support or alimony can allow for the garnishment of Social Security benefits. While these types of creditors may be a threat to someone relying on Social Security, most other creditors will have no access to identifiable Social Security benefits. This means that garnishment by credit card companies, by collection agencies, or for most medical bills is impossible if an individual’s only income comes from Social Security and they have no substantial assets.
Bankruptcy serves as a way for people with overwhelming debt to obtain a “cooling off period” and a “fresh start”. However, anyone considering filing for bankruptcy only as a means to protect their Social Security income needs to consider that their benefits may be safer than they originally thought.