Creditors Can Steal Your Social Security Check Right Out Of Your Bank Account

Nathalie Martin’s elderly cousin had her social security check garnished straight from her bank account by a collections agency. Apparently, most banks skip over the section of federal law that protects social security and other public benefits from creditors. Good thing Nathalie is a bankruptcy scholar and knows how to fight the sleazy debt collectors.

She had been garnished by a credit card company, courtesy of one of those cavernous collections law firms with one attorney (if that) and about 100 paralegals. The firm had saved her bank account information from when she paid off another credit card company that also was a client of the firm. She did not know the second credit card company even had a judgment against her, and it took her a week to find out who garnished her because her bank wouldn’t talk, and this was done without notice. This is all legal by the way…..

Eventually at the firm’s suggestion, she began faxing paperwork to the credit card company’s lawyers to “prove” the funds were SSI and SSA. They’d receive the fax, come up with some reason that the paperwork was insufficient, a page missing, a smudged entry, but never call back to tell her things were amiss. She’d finally follow up, and then she’d hear the next excuse. This went on for two more exasperating weeks. Finally, after much prodding (she was sure the account would be voluntarily released any day now), she sought legal counsel from a legal aid office, which seemed a bit overworked (obviously), and frankly a little peeved that she believed the credit card company’s lawyers were ever gong to release this. She was dressed down for being optimistic and trusting.

Five weeks after the garnishment, she finally got access to her “exempt” funds, having skipped needed medication, rent payments, insurance payments, and who knows what else. She would NEVER have gotten an attorney at all if I had not begged her to do so. She does not trust lawyers and had no idea how to find one even if she did want one. And, she had family to lend her money. Most people in this position don’t. The point is that things are worse than this for most people in her shoes, and many poorer people do not feel they have access to a lawyer. They are right in many cases. That is why it makes no sense to make the consumer prove the garnished funds are not SSI or SSA.

Most senior citizens rely on social security as a major source of income. Congress is aware that even banks illegally pilfer the protected funds to cover ATM fees, insufficient fees, and account maintenance fees. Part of the problem is that banks claim they have no way of differentiating beer money from social security contributions.

The five federal agencies responsible for regulating banks have drawn up nine best practices for banks to follow:

  • Promptly notify a consumer when a financial institution receives a garnishment order and places a freeze on the consumer’s account;
  • Provide the consumer with information about what types of federal benefit funds are exempt, including SSA and VA benefits, in order to aid the consumer in asserting Federal protections;
  • Promptly determine, as feasible, if an account contains only exempt federal benefit funds such as SSA or VA benefits;
  • Notify the creditor, collection agent, or relevant state court that the account contains exempt funds in cases in which the financial institution is aware that the account contains exempt funds;
  • If state law or the court order will permit a freeze not to be imposed if the account is determined to contain only exempt federal benefit funds, act accordingly if that determination is made;
  • Minimize the cost to a consumer when the consumer’s account containing exempt federal benefit funds is frozen, such as by refraining from imposing overdraft, NSF, or similar fees while the account is frozen or refunding such fees when the freeze has been lifted;
  • Allow the consumer access to a portion of the account equivalent to the documented amount of exempt federal benefit funds as soon as the financial institution determines that none of the exceptions to the federal protections against garnishment of exempt federal benefit funds are triggered by the garnishment order;
  • Offer consumers segregated accounts that contain only federal benefit funds without commingling of other funds; and
  • Lift the freeze on an account as soon as permissible under state law.

The Senate held hearings on the issue back in September, but since no legislation has been introduced and the legislative session is winding down, it doesn’t look like the government will help seniors hold onto their protected contributions anytime soon.

Think Public Benefits are Exempt from Execution? Think Again [Credit Slips]
(Photo: O Pish Posh)


Edit Your Comment

  1. trollkiller says:

    I have to agree with the bank on this one, how can you tell the difference between beer money and SS money unless they are deposited in different accounts?

  2. TechnoDestructo says:

    I started considering law school when I came to the realization that in almost every dispute where one side is represented by douchebag lawyers, the other side is represented by lawyers who either are NOT douchebags, or are not ACTING as douchebags at the time.

  3. Hoss says:

    How the heck did this scumbag firm get a judgement through without her knowing about it? Unreal.

    BTW — excellent letter Nathalie; your cousin is lucky to have a such levelheaded (and smart) relative.

  4. pylon83 says:

    She probably ignored all the paperwork and the summons that was mailed to her.

  5. bohemian says:

    Some states do not require proof the person received notice of a court date such as a certified letter or being served in person. Sleezy debt collectors do it all the time.

    Another way to protect yourself from this is to make sure as few people as possible have your bank information. If you ever have to pay someone questionable or a debt collector give them a money order, not a check. Visa debt cards also are harder to track back to the type of bank account data they would need in order to do something like this.

  6. FDCPAGuy says:

    This sort of thing happens quite frequently and is referred to as ‘Sewer Service’ meaning the person was never properly notified to appear in court and the debt collector got a default judgment. They don’t always need proof of service. Sometimes they just prove they mailed papers to a past known address (it might not even be valid anymore!)

  7. acasto says:

    Jason Bourne could solve this problem real quick.

  8. alhypo says:

    @trollkiller: It’s called ‘accounting’. And you might expect banks to be particularly good at it.

  9. Sonnymooks says:

    I know this makes me sound like a bad guy, but after reading so much about collection agencies and debt collectors, I’m going to start using them at my company to go after deadbeats.

    Now, I got to find a really nasty company that is willing to work strictly on contingency based compensation.

  10. balthisar says:

    I almost agree with the banks. Maybe someone can tell me why I’m wrong. Also, no bank fees can be charged against social security? Isn’t that a free license to overdraft?

    Look, you have a bank account. You put in $500 that someone gifts to you. You receive $500 in social security. You withdraw $600 to go gamble at the MGM Grand downtown. Now you get a judgment for $400. Who the hell is there to say that the $600 you took out was social security or the gift money?? Separate accounts seems like a reasonable course of action. Not protecting deadbeats just because their only source of income is social security seems like a better source of action.

  11. trollkiller says:

    @alhypo: ok so the SS check is $300 and other deposits are $100 leaving $400 in the account. You spend $200 how much was SS money and how much was the beer money? Was all of the $200 SS money or was it $100 SS and $100 beer money.

    Please tell me how you expect the bank to be clairvoyant.

  12. The_Duke says:

    Maybe grandma should have saved a little better instead of relying the federal government? Naw, that would take forethought and dedication…

  13. Buran says:

    @trollkiller: Simple: you know the SS check was $300, and since there is now less in the account than the SS check was, you assume the remainder is SS funds and keep your grubby hands off.

  14. Buran says:

    @The_Duke: No, the only thing she did that she shouldn’t have was giving her bank account information to an untrusted third party.

  15. pylon83 says:

    The bank is entirely correct here. It is up to the consumer to prove to the court that the money taken was SS money. The bank should not be expected to devote the time and resources to check and see where the money came from, not to mention the issues Trollkiller, et al have raised. This seems pretty clear-cut to me. Further, to those who have raised the service issue. They still have to prove that service occurred, whether it was in person, certified mail, or constructive service, they still have to show that they made an effort. I’d say in most cases, the debtor is avoiding or ignoring the service. Either way, the bank is correct.
    Additionally, I’m not sure I can accept the fact that SS income is protected. If the person owes a debt, I’m of the belief that it should be paid. I don’t think that the SS income, or at least not all of it, should be shielded.

  16. Charles Duffy says:

    @trollkiller: Even were the bank to assume that all withdrawals to apply to SS money first, that would be an improvement over no accounting whatsoever.

  17. sleze69 says:

    Name the bank. Name the collection agency. Internet shaming can move mountains.

  18. Parting says:

    @The_Duke: You forget that her generation was first trained to be ”housewives” and ”secretaries”. Didn’t pay that well.

  19. North of 49 says:

    this just reminds me of the entire “beer and popcorn” childcare subsidy stuff the Canadian government gives parents.

    It isn’t beer that woman is buying – its rent, utilities, food. I bet beer is the last thing on her mind!

  20. Charles Duffy says:

    @Buran: They could have just pulled her account info off the check she paid with; a check has the bank name, account number, etc; the only real way to avoid this would have been paying cash or a cash equivalent.

    I’m rather glad of having moved from California (where garnishments are a redress for civil debts) to Texas (where they’re not).

  21. Major-General says:

    @trollkiller: How about because Social Security payments are listed as such when the deposit occurs? Or is that too logical and rational an answer?

    @pylon83: Or they sent one thing, lied about sending another, then ignored her when she asked for clarification.

    @alhypo: Except they’re not.

  22. losiek says:

    @TROLLKILLER: well, they have no problem telling the difference when they benefit, e.g. when dealing with funds carrying two different APRs – promotional 0% vs non-promotional 20%.

  23. Sam Glover says:

    Social security checks are protected because the government is not in the business of paying off consumers’ debts. (Although the government does seem to be in the business of bailing out whole industries.)

    The bank could easily take some initiative here, as a social security check is pretty obvious, and the rule of “first in, first out” means any dummy with a calculator can figure out how much of the money in the bank account is from the social security check.

  24. Sam Glover says:

    Also, can we please stop jumping to the conclusion that everyone in collection or garnishment is a deadbeat? The world is not black and white, and the consumers are not always (and not often) the bad guy.

  25. Buran says:

    @Charles Duffy: You’re assuming they illegally used a check to do this. How do you know?

  26. mac-phisto says:

    this is a tough one. rules for garnishment are different from state to state & although federal funds are excused, there’s no clear cut rule that determines what is & what is not SSI, SSA or Vet benefits once the money is in the account.

    if an account is solely receiving gov’t benefits, then it’s clear that the funds shouldn’t be touched. but many times, there’s also pension or annuity disbursements (or a paycheck) going into the same account. or perhaps the account is holding over a sum greater than the benefit check from month-to-month. in those cases, it’s difficult for a bank to determine what should & should not be garnished. the rule of thumb should be to hold the benefit amount.

    the problem is, there is no rule of thumb. the gov’t says “don’t garnish benefits” & another gov’t says “hand over what’s in the account”.

    now, this particular case seems strange. typically (at least in connecticut), the bank execution is served & all money (over $1000 i believe) is withdrawn from the account. the account holder is sent notification of the execution via certified mail & they are given 15 days (or 30…i can’t remember which) to claim exemption of funds. if no exemption is filed, the money is forwarded to the court. the beauty of this system is that the account owner must decide what is exempt (under penalty of the law), not the bank. & there is a period to recover the funds before they are forwarded to the creditor. perhaps it’s not so simple elsewhere.

  27. BlinkyGuy says:

    The depositor should not have to supply “proof” to the bank that the money is exempt and not beer money. It is YOUR bank; they are paid to protect your money and not just with vaults and time-locks. If there are several ways to interpret something, they have an obligation to lean your way and require the other party to supply proof that it is not exempt.

  28. FDCPAGuy says:

    I know some scummy JDB (junk debt buyers) who may purchase debts from you and then attempt to collect them. Asset Acceptance (AAC) and Midland Collection come to mind.

  29. pylon83 says:

    You’re not paying your bank to be your accountant. Further, you’re not really paying them at all. Granted, they make money investing your money, but you’re not cutting them a check for a service. I think your argument is without merit.

  30. cosby says:

    “Offer consumers segregated accounts that contain only federal benefit funds without commingling of other funds”

    This would be the best way to protect the ss money.

    As others have said how do you determine what money in the account is from ss and what is from something elce. I can’t fault the bank for doing the transaction if it was legit.

    The creditor that refused to work with the person giving various lies and whatnot though is another story.

  31. trollkiller says:

    @Buran: And what happens next month? and the month after that? You can’t tell what money is what in an account that has other funds going into it.

  32. trollkiller says:

    @pylon83: Some of us have to pay a maintenance fee, so we are paying them. I do agree with you that we are not paying them to be our accountants.

  33. pylon83 says:

    Alright, I’ll give you that. However, they still aren’t being paid to monitor and account for all of your transactions. What next? Are you going to expect them to call you if your payroll isn’t direct deposited as expected?

  34. synergy says:

    This is probably why my mother has a bank account, but places no money in it. She just uses it to cash the check without getting charged a check-cashing fee. All payments are made in cash and money order form.

  35. Greasy Thumb Guzik says:

    The account I pay my bills from has exactly 12 deposits a year, all from SSA!
    Let’s see them pull that shit with me!

  36. MyCokesBiggerThanYours says:

    The state of California will take money out of your bank too. I am not saying don’t keep your money in the bank, but just know your money isnt safe there either.

  37. r4__ says:

    @pylon83: If we’re not paying them to monitor and account for all of our transactions they may as well stop sending out those statements indicating ‘balances’ and ‘lists of transactions’…

  38. Sonnymooks says:


    Thanks, I hate being the scumbag, but in my case, its part of my work.

    I really do appreciate your help though.

    I will look into them.

  39. Charles Duffy says:

    @Buran: I don’t know that they pulled the info off a check. I’m making the point that you don’t know that they didn’t.

    That said, what’s so illegal about getting the bank name, customer’s address, etc. off a check? We’re talking about a garnishment here, not an unauthorized charge — all they need to do is show the bank the court order authorizing the garnishment, so they really needed to record was the name of the bank; the account number is a bonus, but not strictly necessary.

  40. SpecialEd says:

    It’s hard for me to work up a lot of sympathy. When Grandma used the credit card, she agreed to pay the money back, right? Pay your debts and you will not have this kind of problem.

  41. ShadowFalls says:

    How it logically is put is this, Whatever the remaining balance in an account which does not exceed the total amount of Social Security payments based upon the current balance is what can not be garnished.

    If you got $700 a month from Social Security and someone gave you $100 a month and you withdrew $400, the first ammount to be removed is that $100 then the rest comes from the Social Security.

    If you were to somehow withdraw all your money and still have your account open, you would start back at $0 till your next check came.

    If you had say $400 left from your Social Security check and deposited $2000, and later spent $600, you would deduct that from the $2000 and end up with $1400 that could be garnished. At all times you would deduct from the other random deposited money first then proceed to deduct from the accumulated Social Security.

    All that make sense to you? Sure does to me, not the easiest thing to track, but it can done.

    There should legislation requiring you to properly notify your bank that you are getting benefits so they can have it properly monitored. Should take just a minor software program to calculate and manage the task.

  42. Curiosity says:

    Just a note, banks are not idiotic they want to maximize their profit and minimize their losses – while some would say that at times their simplified approach to their duties results in a breach of their duties or negligence (when they mistake the numbers on a $100 check for $700 and bounce your checks), but others would say that this results in a “greater efficiency” which banks pass onto consumers.

    Quick overview of the law.

    It seems odd to me what everyone’s conception of what a bank is and what it does for people. Banks are supposed to make you money, as well as manage your negotiable instruments known as checks (which are wonderful things even better than credit cards).

    Today though people (though not banks) forget the utility of negotiable instruments, as well as the fact that the business model of a bank is that they make money off of the presence of your money while minimizing transactional costs, which is how they get paid.

    Questions? look at []

    Moreover people also forget that there are laws and contracts that work in their favor (some of the time).

    The relationship of the bank to the customer is modified both by law (the state adopted versions of the Uniform Commercial Code like [] or []), contracts (such as the service or customer agreements see [] pages 45 on), and custom.

    Thus, people should read at the very least the service agreement, but really should read the UCC portions that have been adopted by most states (or their state)
    [] Shows why the UCC is important.
    [] shows the laws that affect banks.
    [] shows the UCC as adopted by the individual states.

    Note about Social Security (from [] )

    Section 207 of the Social Security Act (42 U.S.C. 407)[] protects Social Security benefits from assignment, levy, or garnishment. However, the law provides five exceptions:

    * Section 459 of the Act (42 U.S.C. 659) allows Social Security benefits to be garnished to enforce child support and/or alimony obligations;
    * Section 6334 (c) of the Internal Revenue Code (26 U.S.C. 6334 (c)) allows benefits to be levied to collect unpaid Federal taxes;
    * Section 3402 (P) of the Internal Revenue Code allows beneficiaries to elect to have a percentage of their benefits withheld and paid to the Internal Revenue Service to satisfy their Federal income tax liability for the current year;
    * The Debt Collection Act of 1996 (Public Law 104-134) allows benefits to be withheld and paid to another Federal agency to pay a non-tax debt the beneficiary owes to that agency: and
    * The Tax Payer Relief Act of 1997 (Public Law 105-34) authorizes the Internal Revenue Service to collect overdue federal tax debts of beneficiaries by levying up to 15 percent of each monthly payment until the debt is paid.

    The Social Security Administration’s responsibility for protecting benefits against legal process and assignment usually ends when the beneficiary is paid. However, once paid, benefits continue to be protected under section 207 of the Act as long as they are identifiable as Social Security benefits using normal banking practices. For example, only social security benefits are deposited into a particular bank account.

    If a creditor tries to garnish your social security check, inform them that unless one of the five exceptions apply, your benefits can not be garnished. You also may want to provide this same information to your financial institution and seek legal assistance if you believe it is needed.

    NOTE: Supplemental Security Income payments cannot be levied or garnished.

  43. Curiosity says:

    Also as a note – banks know exactly where money is coming from (account #) and whom those accounts are associated with. Putting the burden on the account holder seems illogical considering that the bank has equal if not more information than the account holder – not only when the check is being cashed but also when it is paying out of the account (supposedly on the account holders authorization).
    By allocating the responsibility to the bank it not only reduces fraud, but also requires the bank to act in the interest of its depositors – the point of the contract you have with your bank.

  44. BlinkyGuy says:

    @pylon83: I don’t quite know what to tell you. To find my position “without merit” based on not paying a fee is especially astonishing because I don’t believe you know whether or not I pay fees for any bank accounts. You then imply that because I am not “cutting a check” the bank is supplying a free service. Rest assured, they are not. They calculate how much interest to pay me based on what they think they can make off of my deposit. And many people do have a monthly fee on their accounts in addition to added fees for all but very basic services if they don’t maintain a minimum balance.

    Some states require that depositors be given the opportunity to show that the account is exempt from garnishment prior to freezing it. I am not asking banks to be provide accountant services but to give their customers the benefit of the legal provisions prior to taking action. The laws regarding garnishment vary from state to state, but you can check out the recent testimony by the General Counsel of the FDIC before the Senate Finance Committee here: []

    That said, there is nothing that beats doing business with institutions that provide the services/support that you need or are likely to need. People should do some research into their banking options and consider whether or not they need a bank at all. Credit unions provide all or most of the services that a depositor on a fixed income is likely to need and generally are more supporting of their members than banks.

  45. Curiosity says:

    Good link to the FDIC – Also good point about credit unions.

  46. mac-phisto says:

    @BlinkyGuy: awesome link. spells it out real well.

  47. vastrightwing says:

    My mattress NEVER gives my money away without my knowledge. My mattress never charges me a fee. My mattress is warm and soft. Now compare that with a bank!

  48. SpdRacer says:

    @alhypo: They aren’t.

  49. mac-phisto says:

    @vastrightwing: yes, but your mattress is also not insured for the deposited amount (up to $100,000/depositor) in the event of fire/theft/etc. & homeowners policies don’t cover cash.

    but aside from that, nothing beats a good mattress. *wishing i was on one now*

  50. BeFrugalNotCheap says:

    Ouch, I have to go with SpecialEd on this one. Perhaps a couple of empty coffee cans will serve as an alternative.

  51. Sonnymooks says:


    Now if your mattress is paying you for the privilege of holding your money (i.e. interest), your as good as gold.

  52. the_wiggle says:

    @trollkiller: direct deposit comes coded with point & source of origin. draft deposits scan images of the ss check. utter BS that the bank cannot tell what’s protected funds.

    @FDCPAGuy: same “service” used by banks, credit card co.s etc. when changing terms, payment center addresses, etc: “we mailed it, you didn’t get it? too bad.”

    @Sam Glover: would be nice, eh? not gonna happen, tho.

    @synergy: my dad does that same. has ever since getting hosed by payment processing errors by Wards years ago.

    anyone’s thoughts on this garnishment issue will be impacted by this little bit of new year news from cnn money et al: social security delivered via pre-paid debit card

  53. en6oh37 says:

    In my situation, wamu froze my checking account and levy $2K. I owe 12K from an cc company. All of my money was from SSI. They said, if the checking account was under $500, they would not taken anything, but since, it was between 2100-28,they took out $2K. For this month, I could pay my rent $1800 plus food, utilities..I call wamu, and got nowhere after i repeatly repeated that my monies was from SSI.

  54. Vickinlouisville says:

    If you people have any old debts and just think they have been over looked or forgotten, think again. I worked for a sleezy law firm that collected money for Asset Acceptance, NCO and other slime balls. When we filed suit we would have a sheriff go serve the debtors. If the debtors hide from the sheriff we sent and alias summons certified mail. After 30 days or so the debtor would have judgment entered against them.

    I hated working for the law firm because I received so many death threats. We had to work in a building under lock and key. Always thinking someone might be out in the parking lot ready to kill you. It’s a dirty job, and I aint doing it ever again. I was fired last Friday, but it was a blessing in disguise.

  55. Anonymous says:

    It is simple for the banks to figure out what funds are exempt!
    When deposit goes direct deposit – it ALWAYS give the name of the company – such as Social Security, VA, etc. Why is that so hard. Banks are just like Credit Cards Companies, Collection Agencies – they don’t care. And why is it always the elderly who have their account’s frozen. Go after us the elderly because, we are an easy target?!?! Banks can make the process simple. Anyone who funds are exempt the account should be noted.