Social Security & Filing Bankruptcy Law
Article 1 section 8 of the United States Constitution covers the provisions for bankruptcy laws. It states "The Congress shall have Power to . . . establish a uniform Rule of Naturalization, and uniform laws on the subject of bankruptcies throughout the United States." People with debt management problems are concerned about the effects of filing bankruptcy on their Social Security benefits, especially if it is their only or major source of income.
Other People Are Reading
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Applicable Law
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Section 207 of the Social Security Act states " (a) The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law." Social Security payments cannot be used to pay off debts in a bankruptcy proceeding.
Bankruptcy Means Test
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The U.S. bankruptcy courts have consistently interpreted this section of the Social Security Act prohibits any form debt collection, such as levy, garnishment or any other legal process. The courts have also interpreted Section 207 as forbidding the use of any Social Security Act benefit as being exempt from any form of means test used to determine eligibility for bankruptcy protection.
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Federal Income Taxes
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Section 207(c) of the Social Security Act states "Nothing in this section shall be construed to prohibit withholding taxes from any benefit under this title, if such withholding is done pursuant to a request made in accordance with section 3402(p)(1) of the Internal Revenue Code of 1986 by the person entitled to such benefit or such person's representative payee." The IRC section 6331(h) and the Taxpayer Relief Act of 1997 granted the Internal Revenue Service (IRS) the power to use this provision of the Social Security Act to garnish federal payments, such as Social Security.
FPLP And Bankruptcy
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FPLP is an acronym for Federal Payment Levy Program. It is an agreement between the IRS and the Treasury Department's Financial Management Service (FMS) to use the IRS's power to levy certain federal benefit payments to collect on delinquent accounts. The IRS sends FMS information on delinquent accounts and the FMS checks their records for people receiving federal payments. When FMS finds delinquent accounts receiving benefits, they alert the IRS. The IRS sends a garnishment notice that will take effect in 30 days. The IRS can attach up to 15 percent of benefits to collect delinquent accounts.
Tip
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Even though Social Security payments are protected from collections procedures by all debtors except the federal government, bankruptcy courts can still take out liens against bank accounts on behalf of debtors. To protect Social Security benefits from being frozen, debtors expecting a bank lien should open a new account and use it solely for Social Security deposits. If the IRS garnishes the accounts, it will be much simpler and quicker to get the Social Security funds released if there are no other funds in the account.
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References
Resources
- Photo Credit Bankrupt. Businessman with empty pockets (with clipping paths) . image by Vitaliy Pakhnyushchyy from Fotolia.com
