Protecting Federal Benefits

A new federal rule that restricts the ability of creditors to seize funds from federal exempt benefits held in bank accounts went into effect as of May 1, 2011.

The protected federal exempt benefits include:

Social Security
Social Supplemental Income (SSI)
Veterans Benefits
Railroad Retirement and Railroad Unemployment Benefits
Federal Employee Retirement Benefits

The new rule does not protect military pay or retirement benefits, Coast Guard payments or other federal agencies. In addition, garnishment orders from the federal government or state child support enforcement agencies are not covered by the rule.

According to the National Consumer Law Center, if a bank receives a garnishment order, the bank will be required to determine whether an account contains electronically deposited federal benefit payments. If so, the bank is obligated to protect two months of those payments from seizure to satisfy garnishment orders.

To protect funds deposited before the two-month time period, or deposited by check, the recipient will have to follow the state procedure for claiming exemptions.

The new rule preempts weaker state laws on garnishment of federal exempt benefits, and honors stronger state laws like those in some states that protect up to $2,700 of direct deposited Social Security benefits from garnishment by creditors.

 Jay Lashlee, True Trust Book by Jay Lashlee