A new law provides additional protections to federal retirement benefits such as social security, railroad retirement, etc. While those benefits were already exempt from creditors, problems arose from bank garnishments “freezing” a bank account. Creditors can always send garnishments to banks. There’s nothing illegal about that. Once a bank receives a garnishment order, it freezes the account for a certain number of days to give the depositor time to argue with the creditor (NOT with the bank!!!) about whether the money is owed or not, and whether the bank account contains creditor-exempt money or not.
The account might contain only exempt direct deposits, or it might contain exempt money and other, non-exempt, money. The banks always freeze the whole account (up to the amount of the garnishment) and let creditor and depositor sort things out. In the meantime, the depositor might have NO money to pay bills, buy food and gas, etc. It gives all the negotiating power to the creditor, who might say, “Agree to let us have 50% of the money in the bank account, and we’ll tell the bank to unfreeze the other 50%.”
In reality, the creditor might not be entitled to ANY of the money, legally. But, if the depositor desperately needs some money, and can’t afford a lawyer, then he or she is legally allowed to bargain away their exemption rights. As a result, allowing a bank account to be frozen gives the creditor tremendous leverage.
All that is changing soon. A new federal law goes into effect on May 1, 2011. It says that when a garnishment comes to a bank, it must review the depositor’s account for a period going back 60 days. It must add up the total of all exempt direct deposits for that 60 day period. It must then leave enough money available in the account–unfrozen–to equal the total of those exempt deposits, or the entire balance on the day of the garnishment, whichever is less. The bank can charge a garnishment fee for doing the review, but it must collect the fee on the day of the review, and it can’t collect it from any exempt funds.
If you want to read the new law, click HERE. If you want to read more about this subject, search on the words: “Garnishment of Accounts Containing Federal Benefit Payments” Hopefully this will help our senior citizens, many of whom have lost everything except their social security checks. Please share this post with anyone you think should know this information.