Saturday, October 27, 2007
Keeping protected income safe
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Henry Woodward
Woodward is general counsel of the Legal Aid Society of Roanoke Valley, which provides legal assistance to people who can't afford to pay lawyers.
The Roanoke Times article "Federal committee eyes garnishments" (Sept. 22) and editorial "Safeguard federally protected income" (Sept. 27) highlight a tragic risk faced by people who live on Social Security disability and retirement benefits or SSI.
The Social Security Act specifies that "none of the moneys paid or payable [as Social Security] shall be subject to attachment, levy or seizure by or under legal or equitable process whatever, either before or after receipt by the beneficiary." Despite that sweeping protection, the very poorest of our citizen neighbors find their protected benefits are being frozen by their bank whenever a judgment creditor presents their bank with a garnishment.
Evidently, the major banks think that the federal prohibition against levying on federal benefits doesn't apply to them.
The banks tell their customers just to go work it out with the creditor or apply to the court to get it unfrozen. If the benefits recipient doesn't or can't work it out or receives no help, then the bank just gives away the benefit money. The banks also routinely charge $100 for each instance of this "service" to their customer.
Your editorial echoes the question asked repeatedly by the chairman of the Senate Finance Committee, Sen. Max Baucus, in recent hearings: What will it take to get banks to do the right thing?
Unfortunately, the feeble proposals of those federal bodies that regulate bank behavior -- hastily assembled just before the hearings -- are only suggested practices and are mostly a description of the present travesty, rather than a solution to it.
Your excellent coverage of the problem has struck fear into the hearts of many who depend on those "protected" benefits to pay the rent and keep food on the table and light the growing darkness.
The Legal Aid Society and local Office on Aging have received anxious calls asking how these lifeline benefits can be protected. While the anxious await deliverance at the hands of the Congress or federal regulators, however, there are some steps that may prevent or reduce this loss of critical benefits.
So if you do receive Social Security or SSI or Railroad Retirement or other exempt federal or state benefits, how can you protect your money from judgment creditors? Several concrete suggestions:
n First, don't worry until someone gets a court judgment against you. Unless the company you owe is the bank itself, no money can be garnished from your account without the creditor first getting that judgment.
n Once a creditor sues and gets a judgment against you, then you face a choice: Keep your benefits coming by direct deposit to the bank or stop direct deposit and get your check in the mail.
n If you continue direct deposit to a bank account (which is convenient for paying bills but exposes you to just the risk of garnishment we're talking about), then keep your account "pure" -- that is, don't deposit anything else into it, so that your bank statement will show that all your deposits are exempt benefits and should not be taken.
n Be prepared, if your account is garnished, to use the exemption claim form that comes with your garnishment notice. Take the claim form and your statements showing where the money comes from immediately to the garnishing court. A hearing is required within seven business days at which the court will order return of your money if you can show it's all benefits.
n If you don't like living with that risk, you can get your check in the mail and just use your bank account to cash it. That way there won't be much lost if a garnishment does hit. But you'll have to find some way to pay your bills without using checks.
n Finally, you may be able to switch to a credit union or locally owned bank that will do the "right thing." Some institutions, if the account with your direct deposit benefits check is garnished, will just check that box on the garnishment answer that says essentially, "Sorry, nothing here that can be garnished."
It's that simple if your account is pure and the institution cares about you.
