The Treasury Department’s New Regulation To Protect Social Security Benefits

Recently, the United States Treasury Department put a new rule into place that seeks to protect those the garnishment of Social Security benefits. When you are collecting, and depending on, Social Security benefits, it can be extremely difficult to deal with debt collectors. To then have your bank garnish your Social Security benefits, can put you in a position where you have very few options.

According to an article on Market Watch:

Before the new rule, when debt collectors pursuing an unpaid debt secured a court-ordered garnishment, the bank often would simply freeze the money in the debtor’s account, whether or not it included federal payments, such as Social Security benefits, said Margot Saunders, an attorney with the National Consumer Law Center.

The easiest thing for a bank to do in this instance is to freeze the entire account, regardless of the source of the deposits. The problem with that type of response, is that it can leave the recipient – oftentimes an elderly person – with no way to pay for basic living expenses.

There are actually rules and exemptions in place, which govern when and how a debt collector can garnish Social Security benefits, but as Saunders points out, “It’s very, very difficult for an elderly person to step through the hoops that are required for exemptions… In the meantime, while they’re going through that process, they have no money.”

Having all of your money frozen at once can lead to financial disaster for someone in a social welfare program.

A New Rule For Banks Ordered To Garnish Social Security Benefits

In an effort to help beneficiaries avoid undue hardship, the Treasury Department will now require banks to verify whether the money in the accounts came from an automatic deposit of federal benefits (including Social Security). If so, the bank is required to leave two months’ worth of federal benefits in the account untouched, so that they can be used to cover living expenses.

However, if the benefits were deposited more than two months in the past, or if they were deposited by check (no matter how recent), then the bank is free to freeze the entire account. The recipient will then have to follow the normal procedure for claiming an exemption in their state.

You may not think that there are a lot of people who are affected by this, but the National Consumer Law Center says otherwise:

NCLC estimates that more than 1 million federal-payment recipients annually had their benefits garnished in a bank account. That estimate is based on “the number of complaints and concerns we get from lawyers around the country,” Saunders said. She said legal-aid lawyers cite such garnishment as among the most significant consumer problems, second only to mortgage-related issues.

This new rule will be a welcome relief to many who were already struggling to make ends meet, and pay off debt at the same time. Whether they be dealing with student loan repayments, credit card debt, or medical debt, they will now be given a little bit of breathing room while they consider their options.

Garnishment Of Your Social Security Benefits By The Government

Keep in mind that this new law only governs court orders directed at banks (after the benefits have been paid). It is still possible to have money withheld from your payments at the Federal level, before you receive a disbursement.

According to the Social Security Administration, here are a few common circumstances in which the Federal government can garnish Social Security benefits:

• To enforce child support or alimony obligations under Section 459 of the Social Security Act;
• Internal Revenue Service (IRS) can levy against benefits to collect unpaid Federal taxes according to Section 6334(c) of the Internal Revenue Code;
• IRS can collect taxes due by levying up to 15 percent of a monthly benefit until the debt is paid;
• IRS allows beneficiaries to have a portion of their check withheld to satisfy a current year Federal income tax liability according to Section 3402 (P) of the Internal Revenue Code;
• Other Federal agencies can collect money from benefits to pay a non-tax debt owed to that agency according to the Debt Collection Act of 1996 (Public Law 104-134); and
• Under the Mandatory Victim Restitution Act, certain civil penalties provide the right to garnish benefits under 18 USC 3613.

This list looks similar to the circumstances in which your tax refund can be garnished. This is why it is so important to take care of all debt before you retire, and never become a cosigner for a loan.

It is much easier to deal with these issues when you have a lot of options, instead of waiting until bankruptcy and debt are all that you have in front of you.

photo by DonkeyHotey