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. The Treasury can withhold 15% of
the benefit,
though
it can't be reduced to below $750. Tax debts have no
floor.
The
change will add more than $6 billion to the $75 billion
in delinquent debt individuals owe
the government, according to the Financial Management
Service, the Treasury's debt collection
unit.
A
Treasury spokesman says the new legislation "allows
Treasury's Financial Management
Service
to collect older debts and levels the playing field so
that all eligible debts, regardless of age, are subject
to debt collection. Treasury expects this legislation
will result in increased collections of $10 million per
year in delinquent federal non-tax debt."
Though no
one argues that people shouldn't repay their debts, the
change is coming at a
challenging time for older Americans already pinched by
mortgage woes, pension cuts and
spiraling medical costs.
The shift
applies to debtors of all ages, but Social Security
recipients will bear much of the brunt.
A Wall Street Journal analysis of Treasury Department
data shows that Social Security recipients
comprise a large and growing percentage of people from
whom the Treasury recovers debts.
For
years, most debt the Treasury collected through its
"Offset Program," came from
withholding income-tax refunds. But with an aging
population and growing unemployment, roughly 10% of the
$4.3 billion in debts collected by the Treasury came
from Social Security benefits in 2008, the latest
figures available. That's up from 1.6% in 2001,
according to Journal
computations that the Treasury confirms.
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.
Consider
the predicament of Dr. Robert Steinberg, the founder of
Scharffen Berger chocolates, who 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.
Dr.
Steinberg received disability benefits in the early
1990s while undergoing chemotherapy for lymphoma, a
condition that ultimately claimed his life. Dr.
Steinberg returned to work
sporadically at a free clinic before co-founding the
chocolate company.
Year
later, the Social Security Administration notified Dr.
Steinberg he was overpaid in the 1990s. In May 2002,
with the matter still unresolved, the agency turned the
debt over to the
Treasury for collection.
In Oct.
2002, administrative law judge Gary Lee found that the
Social Security Administration
had never established the amount of the overpayment; had
dismissed an earlier appeal "for
spurious reasons"; had misinformed Dr. Steinberg and
mishandled his later appeals; and had lost his file. He
noted that Dr. Steinberg was "without fault," and told
the agency to stop its
collections efforts.
Dr.
Steinberg died in 2008, at 61. His lawyer, Peter Young,
a former staff attorney for the Social Security
Administration, has handled more than 100 overpayment
cases, "very few of which were accurate," he says. "Most
people can't find or afford help, and give up very
quickly and end
up with painful offsets on a fixed budget."
An agency
spokeswoman says mistakes can happen, but "over all, the
process works."
Treasury spokesman says the new regulations require
agencies seeking to recover debts more than a decade old
to give debtors the right to review and copy their
files, make payment
arrangements, and apply for disability and hardship
waivers.
But a
recent dispute about a student loan shows that even with
these rights, a person challenging an old debt can face
hurdles similar to homeowners in foreclosure trying to
modify a loan that
has been resold.
