Can a judgment creditor garnish private disability payments?

Question

Can a judgment creditor garnish private disability payments?

Answer

Probably not. Many states won't allow judgment creditors to take your private disability income. And even if states do allow garnishment of private disability, federal law may protect all or a portion of those payments.

Some States Protect Private Disability Income From Creditors

The types and amounts of property and income that are protected from the reach of judgment creditors are governed by state and federal law. States "exempt" (protect) certain types of property from collection, and many states include private disability payments in their list of exempt property. (Learn more about using exemptions to protect property from judgment creditors.)

Protection of Private Disability Payments Under the CCPA

But even if your state doesn't expressly protect private disability payments, it's possible that a percentage of those payments are still exempt from collection. The federal Consumer Credit Protection Act (CCPA) protects 25% of your disposable earnings from collection (what's left after mandatory deductions) or the amount by which your wages exceed 30 times the minimum wage, whichever is lower. (15 U.S.C. 1673(a)). States must protect, at a minimum, this amount too (although some choose to protect even more).

A case in the Eighth Circuit Court of Appeals ruled that private disability income is included in the definition of "earnings" under the CCPA, and therefore is subject to federal garnishment limits. (See United States v. Ashcraft, 732 F.3d 860 (8^th Cir. Oct. 9, 2013)). In this particular case the United States government was trying to collect federal criminal restitution payments from the debtor. However, even though the case dealt with federal collection efforts (which meant that state law didn't come into play), because the federal law dictates the minimum amount of protection, it could be argued that states must also include private disability payments in the definition of earnings. At least one other court, though, has declined to follow this opinion.

Social Security Disability Is Always Protected

It's important to distinguish disability payments from a private company (for example, disability payments that your employer pays) from Social Security disability. Social Security disability earnings are always protected from garnishment. Although you must be careful not to commingle Social Security funds with other funds in your bank account, otherwise, you could put your Social Security at risk. (To learn more, see Protections for Social Security Funds in Bank Accounts.)