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If you have debt, certain federal benefits may be exempt from bank garnishment.
When you have debt that can legally be collected, a court judgment can be entered against you that allows creditors to garnish your wages and your bank account for repayment. If you receive federal benefits, however, these funds may be exempt from collection.
Federal benefits exempt from garnishment include Social Security benefits, Supplemental Security Income, veterans’ benefits, federal Railroad Retirement benefits, federal Civil Service Retirement benefits, federal Employee Retirement System benefits, student assistance, military annuities and more.
The exemption from garnishment of these federal benefits is not new. However, in the past all funds in a debtor’s account were frozen, regardless of the source of those funds, until the matter could be sorted out—which meant these federal benefits were unavailable for weeks or even months. A new law passed in 2011 requires banks to quickly determine if the account has protected federal funds which cannot be frozen.
However, there are exceptions even to these rules. Here’s what you need to know if you receive federal benefits.
1. Federal benefits can still be garnished. If you owe child support or alimony, or have delinquent taxes or outstanding student loans, some federal benefits can still be garnished to pay these debts.
2. Funds must be electronically deposited to be protected. Exempt funds delivered by check are not protected under the new rule. (They may, however, be protected under state laws.) While funds received by check may not be subject to garnishment, they can be frozen until they are deemed exempt.
3. Funds accumulated for more than two months may not be protected. When banks receive a garnishment order, they are required to determine within two business days if exempt federal benefits were deposited in the past two months. If yes, these funds are calculated and protected. If more than two months’ funds are saved in the account, those funds are vulnerable to garnishment
4. Federal benefits moved to another account can be garnished. Garnishment protections do not transfer to other accounts. However, some state laws may protect these funds if they can be proven to be exempt benefits.
5. Your bank must provide you access to your protected and exempt funds. By law, your bank must allow you the same access to your exempt funds as you would have had prior to the garnishment order. The bank must also send you notice of steps the bank has taken and provide basic information of how you can protect funds that exceed the protected amount.
For more information, view this summary with examples from the Department of the Treasury.
This article contains general information. Individual situations are unique; please, consult your attorney before utilizing any of the information contained in this article.
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