[NY] Can the government garnish Social Security to collect an SBA EIDL loan that was never personally guaranteed?

Lexi, Chatbot

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Jon

Hello, and thank you for reaching out! I'm Jon, a licensed attorney with over 14 years of experience, here to help. I understand legal matters can feel overwhelming, but you're in good hands. My goal is to explain things clearly and guide you toward the best possible solution for your situation. Just a quick note: our conversation is for general legal information only and does not create an attorney-client relationship.

What legal question did you have that I can assist with? If you're open to sharing a bit more about what's going on, I can give you advice that really fits your situation. If not, that's completely fine, I'm still happy to help with general guidance. What would you like to do?

Jon

I understand your concern about the garnishment of your Social Security. It can be confusing when you believe you didn't personally guarantee the loan. Let's start by checking a few things. Could you confirm if there was any communication or documentation from the collection agency or the Department of Treasury that explains why they believe they can garnish your Social Security? This might give us a clue about their reasoning.

Jon

Got it. What state is your business located in?

Jon

Understood! I believe I have all the information I need. Is there anything else you'd like to add before I start working on your answer? If not, I'll get started right away.

Jon

Got it! I just need a few minutes to put together a complete response for you. It shouldn't take longer than about 4 to 5 minutes, and I want to make sure it's clear and comprehensive. Thanks so much for waiting, I really appreciate your patience.

Jon

This is a tough spot to be in, especially with retirement getting close. When the U.S. Department of the Treasury and the Bureau of the Fiscal Service step in, it can feel like everything is happening automatically and without much explanation, but there are a few key reasons this can happen even if you never signed a personal guarantee.

Because your loan was exactly $200,000, it falls right at the cutoff under the SBA's 2020 EIDL rules. Loans at $200,000 or less didn't require a personal guarantee, so you're likely correct on that point. The issue is that the government may still treat the debt as personal depending on how the business was structured or how the file was submitted.

If you operated as a sole proprietor, the law treats you and the business as the same, so the debt is automatically yours. In other cases, the SBA may have sent the debt to Treasury with your Social Security number attached as a responsible party, which triggers the Treasury Offset Program. Even ownership rules, like having a 20% stake, can sometimes lead to collection action in practice, even if that alone shouldn't allow it.

As for the 15% garnishment, that is allowed under federal law, specifically Administrative Offset (31 U.S.C. § 3716) , which lets the government take a portion of federal payments like Social Security. Ordinarily, Social Security benefits are shielded from garnishment under (42 U.S.C. § 407), but Congress created an exception for non-tax debts owed to federal agencies through the Debt Collection Improvement Act of 1996, which is what allows this kind of offset up to 15% and is why the usual Social Security protections don't stop it here. The problem is what happens to the balance. Once the debt is sent to Treasury, they often add fees of around 30%, which can significantly increase what you owe.

If your Social Security is your main income, that 15% deduction may not even keep up with interest, so the balance can grow instead of shrink. On bankruptcy, the distinction matters. If you only file for the business, it generally won't stop collection against you personally if the government has already decided you're liable. A personal bankruptcy is different. Filing triggers the automatic stay under (11 U.S.C. § 362), which forces the garnishment to stop right away. Depending on your situation, the debt could ultimately be discharged, meaning erased.

Right now, the most important step is getting proof of why they believe you personally owe this. You can call the Bureau of the Fiscal Service at 800-304-3107 and request the full debt validation package, including the certification sent by the SBA. That will show exactly how this was coded. You can also ask for a hardship review to try to reduce or pause the garnishment, especially if your income is limited.

It would also be wise to speak with a New York bankruptcy attorney soon. They can review your loan documents to see if this was incorrectly treated as a personal debt and help you decide whether to challenge it or use a personal filing to protect your Social Security before you retire. If the debt is discharged through bankruptcy, it can permanently stop the garnishment and give you a clean slate going into retirement.

Jon

You're welcome! Did that help clear things up for you? If you have any other questions or need more help, please don't hesitate to ask, I'm here to support you!

I do hope the information I provided was helpful and addressed your question. If there's anything else you need, please don't hesitate to reach out, I'm always happy to assist. Wishing you a fantastic day ahead!