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Banks Must Guard Two Months of Social Security in Garnishment Cases

Social Security benefits  are supposed to be protected  from being seized in a bankruptcy settlement, or when a court orders  an asset   garnished.

Before the new rule, when debt collectors pursuing an unpaid debt secured a court-ordered garnishment, the bank often would simply freeze the money in the debtor’s account, whether or not it included federal payments, such as Social Security benefits, said Margot Saunders, an attorney with the National Consumer Law Center.

It’s often been up to the person who owned the account to fight for access to his Social Security or other federal benefits, Saunders said. For older people on a fixed income, this can prove difficult.

Before the new rule, “the banks’ response [was] to seize the entire bank account,” she said. “It’s very, very difficult for an elderly person to step through the hoops that are required for exemptions,” Saunders said. “In the meantime, while they’re going through that process, they have no money.”

Under the new rule, when they receive a garnishment order, banks are now required to check whether Social Security or other federal benefit payments have been automatically deposited into the account. This is very important, since Social Security is now sending out virtually all retirement benefits as direct deposits in banks. No more Treasury checks mailed to you, unless you are 90 or older. The new government rule says banks must protect two months of Social Security deposits from any seizure or garnishment.

If the federal benefits were deposited by check, or more than two months earlier, “the recipient will have to follow the state procedure for claiming exemptions,” the National Consumer Law Center said.

This rule “will make the world a less dangerous place for a lot of elderly people,” Saunders said. NCLC estimates that more than 1 million federal-payment recipients annually had their benefits garnished in a bank account. That estimate is based on “the number of complaints and concerns we get from lawyers around the country,” Saunders said. She said legal-aid lawyers cite such garnishment as among the most significant consumer problems, second only to mortgage-related issues.

Written by Bob Rosenblatt

Bob Rosenblatt is a researcher, writer and journalist who helps people looking for up-to-date answers and information on the perplexing issues at the intersection of finances and aging. Bob publishes a weekly report — please take a moment to subscribe in the upper right hand corner of this page.

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