Treasury Plans to Take Social Security from Elderly for Unpaid Loans

A little–noticed law could soon result in smaller Social Security checks for hundreds of thousands of the elderly and disabled who owe the U.S. money from defaulted loans and other debts more than a decade old.

Social Security benefits are off–limits to creditors, such as credit–card companies and banks. But the U.S. can collect debts to federal agencies by "offsetting," or withholding Social Security and disability payments.

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 U.S. hasn't been able to withhold Social Security payments to recover most debts delinquent for more than ten years.

But a provision in the 2008 Farm Bill lifted the ten–year statute of limitations on the government's ability to withhold Social Security 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 that 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.

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