Exempt IncomeCredit Repair Definition
Sources of income that are legally protected from being seized by creditors or debt collectors.
Definition
Exempt income refers to certain types of income that are legally protected under federal or state law from being taken (garnished or levied) by creditors or debt collectors to satisfy a debt. These exemptions are designed to ensure that individuals retain sufficient funds for basic living expenses. Common examples of federally protected exempt income include Social Security benefits, Supplemental Security Income (SSI), veterans' benefits, federal student aid, and certain retirement funds. State laws may provide additional protections for other income sources, such as disability benefits, unemployment compensation, child support payments, and a portion of wages (though wage garnishment limits vary significantly by state). Creditors generally cannot force you to use exempt income to pay unsecured debts, although exceptions exist for certain government debts like taxes or student loans.
Frequently Asked Questions
Can creditors garnish Social Security benefits?
Generally, no. Social Security benefits are protected under federal law from garnishment by private creditors for debts like credit cards or medical bills. However, exceptions exist for debts owed to the federal government (like taxes or federal student loans) and for child support or alimony obligations.
How are exempt funds protected in a bank account?
Federal regulations require banks to automatically identify and protect directly deposited federal benefits (like Social Security) from garnishment. Banks must review accounts upon receiving a garnishment order and protect two months' worth of these federal benefits from being frozen or seized by private creditors. State laws may offer additional protections for other exempt funds.
Does exempt income protection apply to all types of debt?
No. While exempt income is protected from most private creditors seeking to collect unsecured debts, these protections often do not apply to debts owed to the government (e.g., IRS tax levies, federal student loan offsets) or for domestic support obligations (child support, alimony).
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