DEFAULTED LOANS MAY HAUNT SENIORS
March 26, 2010
Social Security benefits are off-limits to creditors, such as credit card companies and banks. But the U.S. government can collect debts to federal agencies by "offsetting," or withholding Social Security and disability payments, says the Wall Street Journal:
- The Treasury currently withholds benefits of 3.1 million Social Security recipients to recover defaulted student-, farm- and small-business loans, unpaid income taxes, amounts veterans owe for health care, and other debts to the government.
- Previously, the United States hadn't been able to withhold Social Security payments to recover most debts delinquent for more than 10 years.
- A provision in the 2008 Farm Bill lifted the 10-year statute of limitations on the government's ability to withhold benefits in collecting debts other than student loans -- for which the statute of limitations was lifted in 1997 -- and income taxes, where the limit remains 10 years.
This means a person who defaulted on a small-business loan in 1995, for example, and who is receiving Social Security could be notified that his benefits may be reduced each month until the debt - with interest, fees and penalties - is paid:
- The Treasury can withhold 15 percent of the benefit, though it can't be reduced below $750.
- Tax debts have no floor.
Though the law has expanded the age of debts that can be recovered, it hasn't addressed the sometimes Kafkaesque process debtors can face when challenging the validity of a claim, says the Journal:
- Dr. Robert Steinberg, founder of Scharffen Berger chocolate, spent more than six years and thousands of dollars in legal fees appealing the Social Security Administration's claim that he owed it more than $28,000.
- In the end, a judge ruled Dr. Steinberg was "without fault," and told the agency to stop its collections efforts.
An agency spokeswoman says mistakes can happen, but "overall, the process works."
Source: Ellen E. Schultz, "Defaulted Loans May Haunt Seniors," Wall Street Journal, March 8, 2010.
Browse more articles on Tax and Spending Issues