Federal Benefits Offsets

Social Security and other federal payment programs help give aging and disabled Americans peace of mind. However, these benefits programs are not as secure as they used to be. The assumption that creditors, whether government or private, could not touch federal benefits is steadily being eroded.

It is critical for seniors to understand their rights when the government, banks, or private creditors threaten to take some or all of their monthly benefits. This is not always easy because the law in this area is changing rapidly.

For example, the general rule is that Social Security benefits are exempt from attachment or seizure by private creditors. As stated in a 10th Circuit decision in 1998:

Social Security funds were never intended to serve as collateral for cars or homes in the first place; they were intended to provide the elderly with means of subsistence.” Tom v. First American Credit Union, 151 F. 3d 1289 (10th Cir. 1998).

The problem for seniors and their advocates is that courts have begun to punch holes in this general rule.

In addition, courts have begun to allow banks to offset deposited Social Security benefits in order to collect fees or other money. This is known as the banker’s right of setoff. For many years, courts held that Social Security benefits were exempt from these types of setoff. This is still the majority rule, but many courts are now allowing banks to use setoff powers to take some or all of a recipient’s benefits deposited at that bank.

Another area of concern involves legal changes that allow the government to collect government debts by seizing certain federal benefits. Information about seniors’ rights in these circumstances can be found in NCLC's Consumer Fact Sheet: When Your Social Security Benefits Are Taken To Pay Back Money to the Federal Government.

All of these issues are discussed in detail in NCLC’s publication, Social Insecurity: Understanding Federal Benefits Offsets, including tips for seniors on protecting themselves from offsets, seizures and setoffs. The publication includes a companion CD Rom with consumer information, related forms, and pleadings and discovery. One copy per organization is free to non-profit organizations serving seniors and to legal services programs. For other organizations or individuals and for additional copies, the cost will be $35.00

For general information about the Social Security program, click here.