New Regulation Keeps Creditors from Freezing Your Account

A new regulation that took effect over the summer will now protect recipients of Social Security benefits who are facing financial troubles. In the past, recipients of federal benefits like Social Security or veterans’ benefits could wind up in a difficult situation if their creditors obtained a garnishment order against them. Garnishment permits creditors to take money directly from a person’s wages if he or she is working or from a person’s bank account in order to pay off debt. Federal benefits are exempt, but a problem arose if the benefits were comingled in a bank account. The bank would often just freeze an entire account if it received a garnishment order, meaning that a person could no longer get to his or her money or Social Security benefits.

The new regulation changed this, and the Schaumburg bankruptcy lawyers at US Law Attorneys, Ltd. recently discussed the benefits that this will have for Social Security beneficiaries. The regulation puts the burden on the banks to differentiate between funds that can go towards paying off debts and those like Social Security benefits that are exempt. The federal government electronically tags its direct deposits so that banks can notice that the funds are exempt. If the bank receives a garnishment order from a court, it has to go through the account to see which funds are exempt and which are not. The bank has three days from receiving the order to send the account owner a detailed breakdown of the type of assets and the amount of garnishment.

As the attorneys at US Law Attorneys, Ltd. point out, this regulation helps those receiving electronic direct deposit of their Social Security benefits. Most (87 percent of all Social Security recipients last year) do this, but for those who did not yet, they will still have the burden of proving that money in their account comes from federal benefits. Now is a good time to change over to direct deposit if you can do so.

Did you have to fight to unfreeze your account prior to this ruling’s taking effect? How did you show that money in your account came from protected federal benefits?

Troutman & Troutman, P.C. – Tulsa Social Security disability lawyers

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