After a debt collector sues you for the debt and wins a judgment, it can get a court order for your bank or credit union to turn over money from your account or prepaid card. This is called a “garnishment.” A U.S. Department of Treasury rule requires banks to automatically protect  certain federal benefits from being frozen or garnished if they are direct deposited into your account. There are some exceptions to this rule, which are explained below. Read about how the automatic protection works.

Benefits covered by this rule:

• Social Security
• Supplemental Security Income
• Veterans
• Federal Railroad retirement, unemployment and sickness
• Civil Service Retirement System
• Federal Employee Retirement System.

Your bank or credit union must automatically protects 2 months’ worth of benefits

If a collector tries to garnish money in your account, your bank must look at your account history to see if you received any of the above benefits by direct deposit in the last 2 months. The bank must protect 2 months’ worth of benefits from garnishment and let you use that money. If your account has more than 2 months’ worth of benefits, your bank can garnish or freeze the extra money. However, if that extra money that is garnished is exempt from garnishment under federal or state law, you may be able to go to court to have your money released.

Benefits on a prepaid card

Many people receive federal benefits such as Social Security or VA on a prepaid card. If your benefits are loaded onto a Direct Express card or to another prepaid account, they are still automatically protected from garnishment just like money in a bank account.

To take advantage of the automatic protections for direct deposited Social Security and VA benefits, you can sign up to have these benefits direct deposited to your bank account or loaded onto a prepaid card.

Examples of how the automatic protection works

• If you receive $1,000 in Social Security each month, your bank will see that $2,000 in Social Security was direct deposited in the last 2 months. The bank must allow you to use up to $2,000 in the account.
• If you receive $1,000 in Social Security benefits by direct deposit each month, and you have $3,000 in your account, the bank can freeze $1,000 of the $3,000. The bank must give you access to the remaining $2,000 so you can continue to pay bills and withdraw cash as usual.

Exceptions to automatic protection

• Government debts and child/spousal support. Social Security and Social Security Disability Insurance (SSDI) can sometimes be garnished to pay certain government debts, such as back taxes or federal student loans, and debts for child or spousal support.  Some benefits, such as Supplemental Security Income (SSI), are protected from garnishment – even to pay a government debt or child or spousal support.
• Paper checks. If you receive Social Security or VA benefits by check and then deposit the check into your bank account, the bank does not have to protect 2 months’ worth of benefits in the account automatically. This means that your entire account balance could be frozen and you’ll need to go to court to prove that it comes from protected federal benefits and should not be garnished.

If your bank account is garnished or frozen:

• If your bank garnishes or freezes any money in your account, you must be sent a notice of garnishment. This notice may explain the court procedures for claiming any exemptions from garnishment and getting your money released.
• A judge decides whether your money should be turned over to the debt collector based on factors such as the source of your income and any federal or state exemptions.
• It is very important for the judge to know that your money comes from Social Security, SSI, VA, or other federal or state benefits before the judge decides whether your money should be turned over to the debt collector. You should notify the court, the bank, and the person/business that is garnishing your account immediately in writing, and seek help from a lawyer .

If your account is garnished or you have questions, consider finding legal help in your state:

You may qualify for free legal help.

• The Center for Elder Rights Advocacy can refer you to a local agency that provides free legal help to seniors who qualify. You can call the Center for Elder Rights Advocacy at: (866) 949-2372.
• You can also find your local legal services program or attorney referral program here . 

Tips:

1. You can use our sample letter to tell a debt collector that your Social Security or VA benefits are protected from garnishment. Check out the sample letter here . If you have other funds protected from garnishment under federal or state law, you can modify the sample letter to fit your situation.
2. Consider talking with a lawyer in your state about other state and federal laws that may help protect your money and other assets from garnishment.Federal and state laws may protect the money you receive from other sources from garnishment. This may include money you receive from a pension or retirement plan, federal student loans, child support or spousal support payments. Other laws in your state may protect some of your money and assets, too. To learn more about how they may be protected, consider finding legal help.
3. Know when your bank can and can’t charge you fees for garnishment. Your bank can only charge you a fee for processing the garnishment if you have more than 2 months’ worth of direct deposited Social Security or VA benefits in your account. To learn more, click here.