I recently came across an interesting change in the rules regarding garnishment of federal benefits, including Social Security Disability and SSI. Effective in early May of 2011, the new rule ( 31 C.F.R. Part 212) still allows, in some cases, creditors to freeze accounts in which the the account holder has co-mingled federal benefits and other income, but now offers improved protection to debtors.
In a prior post, I explained that government benefits, including SSDI, are exempt from garnishment, but that creditors could get around that exemption in cases where the debtor has commingled government benefits with other funds. The debtor/account holder must then go to court and assert his exemption to get the garnishment released with respect to the benefits.
Now, under the new rule, within two days of receiving a garnishment order, the bank must determine if any federal benefits (including Social Security, Supplemental Security Income, VA benefits, Federal Railroad retirement, unemployment and sickness benefits and Civil Service and Federal Employee Retirement System benefits) were directly deposited to the debtor's account(s) during the two month period preceding the date of the review. If, during this ‘‘look-back period,’’ any direct payments of exempt benefits were deposited, then the bank must protect those two months worth of benefits, or whatever amount is left in the account (if less than the original deposits), from garnishment. In other words, those funds must remain available to the debtor, without any requirement on the debtor's part of going to court to assert the exemption. Still, as I suggested in the earlier post, it is probably a good idea not to commingle government benefits with other funds.