The United States Treasury Department recently issued a new rule regarding the ability of banks to seize money from accounts holding federal benefits like Social Security Disability benefits and other federal benefits. The new rule took effect Monday and is meant to protect the income of Social Security Disability beneficiaries and other federal beneficiaries.
Under the new rule, banks that garnish funds from consumers who receive federal benefits must leave two months of benefits payments in the account. While it may not protect all federal benefit payments in an account, at least a portion of Social Security disability payments are protected. The rule affects individuals who are in a situation where garnishment is possible.
Generally, creditors have the right to garnish funds from individuals who default on debt from credit cards, medical bills, utility payments and other loan amounts. Creditors acquire the right to garnish funds if they win a judgment against a debtor. Even under the new rule, if a debtor owes money to the government then the debtor's benefits can still be garnished.
Before the new garnishment rule, creditors did not have to determine what funds in a debtor's account were federal benefits and when courts ordered a freeze on the account the debtor would not have access to the benefit payments for long stretches of time. In addition, if the debtor receiving federal benefits did not complete documentation to unfreeze the account, the benefit amount would be transferred to the creditor. Under the new law, creditors will have to identify benefit funds deposited within the last two months and leave them untouched.
Source: CNNMoney.com, "Hands off my federal benefits!" Blake Ellis, 5/2/11