TN 28 (05-10)
GN 02410.221 Bankruptcy Petition and Garnishment
Social Security Act Section 207, 459, 11 United States Code 362(b)(2)(C)
A. Introduction of bankruptcy petitions
In 2005, Congress acted to amend the United States Code (U.S.C.), per 11 U.S.C. 362(b)(2)(C), in regards to matters of bankruptcy. These amendments serve to provide, among other things, that the filing of a bankruptcy petition does not act as a stay “…with respect to the withholding of income… for payment of a domestic support obligation under a judicial or administrative order or a statute.
B. Procedure for SSA as an exempt or non-exempt creditor in bankruptcy petitions
In accordance with 11 U.S.C. 362(b)(2)(C), SSA will continue to withhold benefits to honor a properly served order to garnish Title II benefits for child support or alimony, even if a beneficiary files a petition for bankruptcy.
There are two scenarios that we must be aware of when considering bankruptcy in relation to garnishment cases:
Status as an exempt or non-exempt creditor is listed in the bankruptcy petition.
1. If a bankruptcy petition is filed exempting Social Security as a creditor
Continue garnishment withholding and payover in the Court Ordered Garnishment System (COGS).
Annotate COGS remarks to indicate that a bankruptcy petition has been filed for the affected beneficiary (include the bankruptcy case number).
2. If a bankruptcy petition is filed which does not exempt Social Security as a creditor
Continue garnishment withholding;
Stop payover in COGS (see SM 00832.250 or MSOM SPECPAYSYS 003.008;
Annotate COGS remarks to indicate that a bankruptcy petition has been filed for the affected beneficiary and that SSA is not exempted (include the bankruptcy case number);
Refer the case to the Office of General Counsel (OGC) or the Regional Chief Counsel (RCC) to determine whether continued garnishment of benefits is appropriate; and
Follow OGC’s response for guidance in how to handle the garnishment of the case in question (for COGS manual adjustment instructions, see SM 00832.340).
NOTE: Pay particular attention to the consideration of Social Security’s status as an exempt creditor. It is possible that a child support or alimony obligation could be considered as part of a reorganization plan and that the bankruptcy court might attempt to address these obligations as part of that plan. In these cases, forward the order to the OGC or the RCC to insure that double garnishment does not occur.