While this post from the reliable blog Credit Slips is mainly a long anecdote, it nevertheless contains an important message; benefit payments, which under the law are supposed to be protected from garnishment, on a practical level are not. Banks are supine when creditors show up with the appropriate paperwork. And as this example shows, it is difficult to get your money back.
If you are receiving benefits, or have friends or relatives that are, encourage them to be vigilant. It is easier to become subject to garnishment than you might think. It happened to me once through no fault of my own.
Many years ago, I had New York City come after me because they failed to credit my fourth quarter corporate tax payment (mind you, I had the cancelled check to prove they had been paid) AND they failed to send me any notice that they thought a payment had been missed. I found out only when my friendly bank told me they have been ordered to send them the dough (two times the alleged liability, by the way) five days in advance.
I called the city as soon as I had gone through my records. The agent on my case said I hadn’t made my 4Q payment; I told him I had and could fax him the cancelled check. He proceeded to start screaming at me (I am not exaggerating, this came completely out of left field) that he was like the cops, he was going to take my money and I would have to fight him to get it back. I got off the phone, badly shaken, and called my accountant.
Even though he was a young fellow, he seemed to know how to handle the matter, which was to get the guy’s supervisor, tell him I was very responsible and well connected, and ream him. The action was dropped immediately.
That is a long winded way of saying here I was dealing with a public servant and had physical evidence in my possession that he was in error, yet he was bound and determined to proceed. If you get in the crosshairs of someone who has gone as far as getting an order of garnishment, even if by mistake, assume that it will be a hard-fought battle.
The post also notes that there are measures under way to improve bank compliance with the law.
From Credit Slips:
I have been telling my students this for years. Perhaps you have too. 42 U.S.C. § 407(a) says social security and other public benefits are free from the claims of executing creditors, but for many people that is true only on the books, not in real life. Why the disconnect? Because right now, under current law and regulations, banks are under no obligation to check to see if the money in a bank account comes from social security or disability payments before allow a garnishment to go through. This is true even if the only funds in the account are wired there directly from the government and are marked SSI or SSA. In fact, banks say they must comply with any garnishment order, even if the funds are obviously exempt. Of course, they also make a bundle on all the fees that result from this shameless practice.
Section 407(a) is not worth the paper it’s printed on because it is very hard for a consumer to undo the garnishment, as I recently learned. My cousin (a 67 year old woman with a disabled adult son, who has been through a horrible marriage and divorce, several minimum wage jobs since she had no work experience, a car breakdown, etc.) had her ATM refused.
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.
So, who knew? As it turns out, the exempt funds rule contained in Section 407(a) is all but worthless unless banks are required, at least in some obvious cases, to refuse the garnishment in the first place. That was the bad news. The good news is that, thanks to the
and Margot Saunders, the Senate Finance Committee is putting pressure on federal banking regulators to require banks to do the following after receiving a garnishment request:
1). look to see whether electronically deposited funds are exempt before allowing a garnishment to go through, and refuse the garnishment if all the funds are exempt, or
2). if there are commingled funds, apply FIFO or LIFO, and only allow the non-SSI/SSA funds to be garnished.
You can find out how to help move the process along by contacting Margot Saunders at the
at email@example.com. Other thoughts or comments about how to get this change made (or just disagreeing or agreeing with my position) are very welcome.