Social Security Issues New Garnishment Rules

social security issuesThe Social Security Act has always protected retirement, survivor’s, and disability benefits from garnishment by creditors (other than the IRS and State child support agencies). But in spite of this very clear law, banks have disrupted the process for years by allowing creditors to garnish bank accounts without first looking to see whether the money in the account was protected. This resulted in a LOT of unjust deprivation of crucial funds for people unable to work and unable to afford a lawyer to help them defend their meager assets.

Here is what would happen: Old Lady on Social Security gets sued by a credit card company. Her only source of income is her monthly benefit. The creditor cannot take that money directly from the government (the way they garnish paychecks), and they aren’t supposed to be able to take benefits from a bank account. But they can take non-benefit funds from a bank account. So they would sue you, get a judgment, serve a garnishment on the bank account, and the bank would then either a) hand over all of the money or b) “freeze” all the money in the account until the old lady contested the garnishment in court. Unless the Old Lady happens to be a lawyer who knows how to contest a garnishment, there really was not much difference between the two practices. So for years, creditors ended up getting money they had no right to take. This certainly was not what Congress intended when it created the Social Security system decades ago.

It took about 40 years for the government to finally fix the problem. Unsurprisingly, the solution did not come from Congress, but from the Social Security Administration. Beginning on June 28, 2013, banks who are served with garnishments must take specific measures to ensure that protected funds remain protected:

1.  They must review the past 2 months of bank account transaction history to see if any federal benefits were deposited into the account during that period. If so, then the amount of those deposits (or whatever is left in the account if the account balance is less) is protected and cannot be given to the creditor.

2.  They CANNOT freeze your money. Nor can they charge a “garnishment fee” to your exempt money.

3.  They must notify you of your rights to protection of exempt funds.

The combined effect of these rules is a HUGE help to struggling retired and disabled Americans. This debt collection loophole has been effectively closed. If you have questions about your Social Security benefits, give us a call.