Dear Debt Adviser,
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In another column, you explained that federal benefits can't be garnished, unless it's to pay a government debt or child support. You said that banks must protect two months' worth of direct deposits. But what happens to the rest of your money? After leaving the two months' of deposits, can creditors take the rest of it? Can they garnish funds from the checking account? Please let me know. I was told that any retirement, unemployment insurance, child support money directly deposited to banks cannot be garnished.
Thanks for asking for more information on this subject. Yours was one of several requests for more information about the new rule that banks must automatically protect two months' worth of directly deposited Social Security and other garnishment-exempt funds. Here is a second bite at the apple.
All government benefits, Social Security and most retirement funds are exempt from garnishment unless it's to pay a government debt, child support or spousal support. This is a new rule under the federal Guidelines for Garnishment of Accounts Containing Federal Benefit Payments. Before those guidelines -- that is, before May 1, 2011 -- banks automatically froze the funds in a bank account when issued a garnishment order.
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The owner of the account had to then prove that the funds in the account were exempt from garnishment. In a way, you were guilty until proven innocent. The old process could take several weeks to resolve, and in the meantime, the account owner would not have access to the funds in the frozen account. Imagine how stressful your financial and social life would be if you couldn't get at your direct deposited paycheck, write a check for items like groceries, electronically pay your credit cards or withdraw money from an ATM for several weeks. That's why the new rule was put in place.
The new rule requires banks to research your deposit history to ensure that the bank protects direct deposited exempt funds going back two months from the date of the garnishment order. You have to prove nothing. Should you have more funds in your account than two months' of directly deposited exempt benefits, and the additional funds are all also exempt from garnishment, those funds are still protected. They're just not protected automatically.
Protecting two months' of funds should prevent the hardships that happened before the new rule was implemented. For those whose creditors execute a judgment with a garnishment order, and who have garnishment exempt funds in excess of the protected amount, you can still protect those funds by filling out a garnishment exemption claim form.
The bank is required to send you notice of the garnishment order and instructions for completing the garnishment exemption claim form. Follow the instructions given by the bank and be sure to return the form within the time period described. As long as you do so, the bank cannot send the funds to your creditor until it is determined whether your funds are indeed exempt from garnishment.
Depending on the laws in your state, you will likely be required to appear before a judge to prove that your funds are exempt from garnishment. Anytime the courts are involved, I recommend that you be represented by your own attorney. I know hiring an attorney is not an expense you want to incur, but when dealing with the law, I have found that things tend to go smoother if you have a knowledgeable professional by your side.
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