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)

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