Your Social Security Disability Income Is Probably Safe…For Now

Is the Social Security Disability Insurance program on a path of self-destruction? Thanks to the aging population and high unemployment levels, a record number of Americans are collecting benefits, and the Social Security Board of Trustees is warning that the Disability Income Trust Fund will be exhausted in 2017 unless legislative action is taken. The Social Security Administration’s (SSA) Disability Insurance (DI) program paid almost $123 billion in benefits in fiscal year 2010 to more than 10 million workers and their dependents.

For many recipients, Social Security Disability Income (SSDI) and/or Supplemental Security Income (SSI) are their financial lifeline. Their more immediate concern may not be what happens in Washington to save the program, but what happens today to the money they receive. I couldn’t find any statistics about how many SSDI and SSI recipients have past-due bills, but if our email is any indication, plenty of them are struggling and getting calls from creditors or debt collectors threatening to take the little income they do get each month. And because it takes so long to get approved for disability these days, applicants may find themselves already in the hole by the time they start receiving benefits.

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If you are already receiving SSDI and/or SSI, then it is probably safe from creditors and collectors—for now. But there are still threats you’ll need to watch out for.

Before I describe how and when disability income is protected from creditors, here’s a quick background:

Social Security Disability Income may be available to workers if they have worked long enough to earn credits under Social Security, and they have a severe physical or mental impairment that prevents them from working for a year or more, or if they have a medical condition that is expected to result in death. According to the AP, the average monthly benefit is $927.

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Supplemental Security Income (SSI) makes monthly payments to ­people who have low incomes and little in the way of financial assets or resources, including those who are disabled. Children as well as adults may qualify for SSI ­disability payments. At the end of 2010, the SSA reported the average monthly benefit under SSI was $501.

Most disabled workers receive SSDI payments. A much smaller number receive only SSI and an even smaller percentage receive both.

For those who rely on these benefits, the good news is that they are generally protected from creditors and debt collectors. However there are exceptions in the case of past-due child support, past-due taxes, and federal student loans. “They can chase you (for student loans) to the grave,” warns bankruptcy attorney Cathy Moran.

“SSI payments cannot be garnished by any creditor,” says attorney Jonathan Ginsberg who practices bankruptcy law as well as representing consumers trying to collect SSDI benefits. ” Why? Congress has decided that SSI beneficiaries are hardly generating any income (around $660 per month maximum under the SSI rules) that as a matter of public policy it would not be fair to garnish their SSI benefits, even for child support or past due taxes.

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Mixed Up Social Security Benefits »

Image: Josh McGinn, via Flickr.com

Mixed Up Social Security Benefits

However, the fact that creditors or collectors can’t take this type of income doesn’t necessarily mean they won’t try. In the past, it’s not been uncommon for creditors with judgments to freeze debtor’s bank accounts for weeks while trying to determine whether the funds in those accounts were exempt, warns Philadelphia consumer law attorney Michael Forbes. Forbes, who sues debt collectors, points out that new rules “now place the burden on the banking institution to determine whether or not these funds were protected from attachment. If the recipient’s bank account contains protected funds, the banking institution is now required to protect two months of benefit payments from attachment. The remaining funds can also be protected but there still remains a process (to protect those funds).”

However, if your benefit payments are deposited in an account where other money is also deposited (funds from relatives, including a spouse, or funds from other sources of income), then you could have a difficult time demonstrating that the money in that account is exempt. For that reason, all three attorneys I interviewed recommended keeping a separate bank or credit union account just for those funds.

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Moran says, “The single most important step that a disability recipient can take to preserve the benefit is to keep the money in an account separate from any other assets or sources of income, so tracing the bank balance to (Social Security income) is easy.  If you have choices, spend non-exempt income first and save the disability benefits. The protection for these funds does not vanish over time, so long as the funds can be traced to a protected source.” Ginsberg also urges his clients “not to put anyone else’s name on their Social Security account. Doing so does not eliminate the protected nature of the Social Security funds in such a joint account but you may find yourself having to pay a lawyer to defend a collection effort, or worse, trying to get your money back from a garnishing creditor.”

If a creditor or debt collector threatens to seize your SSDI or SSI payments because you have fallen behind on a consumer debt, contact a consumer law attorney immediately. The debt collector may be in violation of the federal Fair Debt Collection Practices Act. The FDCPA doesn’t apply to creditors collecting their own debts, but they may be breaking state law with that threat.

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Social Security Disability Overpayments »

Social Security Disability Overpayments

Sometimes, however, the government is the creditor. The SSA reports that disability insurance overpayments increased from about $860 million in fiscal year 2001 to about $1.4 billion in fiscal year 2010. (Those were the ones detected. SSA suspects there are more.) Most of these were reportedly due to recipients who returned to work but were still collecting benefits.

Ginsberg says that the rules are confusing and can lead to overpayments. An example is the program that allows a disabled person to return to work in a trial work period for up to nine months and still receive benefits. On his blog he notes that “Sometimes, a disabled person may exceed his/her trial work months and not realize it.” He also notes that some workers return to work and continue to receive disability benefits, and keep them because they feel they “need the money.”

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Regardless of the circumstances, if you are notified that you have been overpaid for benefits, you can:

1. Pay it back (often easier said than done if the money has been spent),
2. Pay SSA back out of current benefits, if you are still receiving them. (SSA may reduce your benefits until the overpayment has been repaid),
3. Apply for a full or partial waiver of the overpayment, or
4. Discharge the overpayment in bankruptcy.

Moran adds that, if necessary, you may be able to discharge the claim against you for overpayment in bankruptcy without reducing payments that come due after the bankruptcy is filed. If you are notified of an overpayment you can’t repay, talk with a bankruptcy attorney.

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The Future of the Social Security Disability Program

No doubt, Congress will be looking at the future of the SSDI and SSI programs. Some experts believe the pressure is already on, with the result being fewer approvals for disability income applications. Ginberg has an active practice representing SSDI claimants and he says that, “Cases that I would have won two years ago are now being turned down—and this is after the claimant has waited 2-3 years to get to a hearing.”

According to Donald Coggan, owner of Accessible.org, “In the last two years, we have published 1600 stories of disabled people, nearly all of them in desperate financial straits. Their situation is often made much worse by waiting, years in some cases, for SSDI approval.” He has noticed that while many people wait for approval for their disability benefits, they use up their savings—including retirement savings—and often go into debt as well.

“Bottom line,” warns Ginsberg, “I get calls from people who are sick and injured and I tell them to hang on as long as they can because if they apply for Social Security, it may be three years to get to a hearing and even then, they are facing an uphill battle.”

In the meantime, 2017 is just getting closer.

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