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How do debt collection and garnishment affect government funds, such as SSI?

Por: Legal Aid Service of Northeastern Minnesota-Duluth LSC Funded


A legal question and answer line for Seniors.



Over the years I have racked up some credit card and medical debts, and up until now I have been paying on the debts. However, I have run out of my savings and have recently stopped making payments on these debts. I am living on a fixed income - the only money I have comes from my small Social Security retirement and Supplemental Security Income (SSI), which are automatically deposited in my bank account. I fear that creditors will attempt to freeze my bank account and I will not have access to my money and I will not be able to pay my rent and other living expenses. Can the creditors do this? I know that the kinds of assistance I receive are supposed to be protected, but I have friends who have had their accounts frozen even though they were also living on protected sources of income. Please advise me on whether this is legal for them to do, and if so, how I should proceed.

Signed, Clarence




It is legal for a creditor, usually after obtaining a court judgment against you, to look for ways to collect on that judgment. One of the ways a creditor does this is to send a garnishment notice (called a summons) to the debtor's bank. Currently, the bank would then freeze the account until the debtor proves the money it is exempt. However, I have good news - a new federal rule, effective May 1st, 2011, greatly strengthens the protections for exempt government funds, such as Social Security, Supplemental Security Income (SSI), VA, Railroad Retirement, federal Railroad Unemployment and Sickness, federal Civil Service Retirement, and federal Employee Retirement benefits. The new rule will stop bank freezes as long as these types of protected government funds are directly deposited into the account.


The legislature traditionally created these exemptions as fundamental safeguards for the protection of low-income people. The Courts have also said that the exemptions are to allow people to have money to survive, to protect a debtor's dignity, to give the debtor a means to financial rehabilitation, to protect the family from impoverishment, and to spread the burden of a debtor's support from society to his or her creditors. See In re Johnson, 880 F. 2d. 78, 83 (8th Cir. 1989) (Minn). For example, your Social Security benefits are protected under federal and state law from garnishment. The federal law protecting Social Security Old Age, Survivor's, and Disability benefits says: "The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law." 42 USC 407 (a). SSI has corresponding protections in 42 USC 1383(d)(1).


While these types of funds are protected by exemption statutes, whenever garnishment statutes have been created, the law has to catch up to create practical protections for these exempt funds. A bank freeze is one of those times in the garnishment process where your exempt funds are vulnerable, despite being protected. The exempt funds are vulnerable because in a lot of cases, debtors do not realize their funds are exempt and do not send in the exemption notices, or are too daunted by the paperwork, and just let the creditors keep their money. It also creates bank fees for the debtor if any checks bounce, which is additional debt piled on the debtor, which usually a debtor has to pay. This new rule will put the onus on the bank to look out for exempt funds and if there are any, to not freeze the account.


Before this rule is effective, the banks operate under the old rules - if they get a garnishment notice from a creditor, they had to freeze the account, even if the only money in the account was from an exempt source. It is then up to the debtor to send in exemption notices (to both the bank and the creditor) to inform them that the money in the account came from protected funds - and then wait for the account to be unfrozen. This process could take from anywhere from a few days to weeks. The problem is that during a bank freeze, a debtor does not have access to their own funds. If there are any checks outstanding, they will bounce and the debtor will be charged bank overdraft fees. The debtor cannot take money out of his or her account during the freeze. As such, if the freeze happens in the beginning of the month, it will be impossible for the debtor to use his or her account or get at the money in the account to pay their rent or mortgage, their utility bills, prescription and co-pay bills, and other survival bills. It can be devastating to a debtor. The U.S. Treasury Department has known about this problem and has made efforts in the past to make things easier for debtors who have protected funds. For example, they created the Direct Express bank card that only accepts Social Security and SSI funds and did not allow freezes or garnishments on these accounts. However, the Direct Express bank card option did not entirely stop the problem, so the U.S. Treasury Department promulgated a new federal rule that stops the bank from freezing an account that has protected government funds (like Social Security, SSI, Veteran's benefits).


The new rule, 31 CFR §§ 212.1 to 212.12, takes effect on May 1, 2011. On May 1, when a bank receives a garnishment notice from a creditor, they cannot automatically freeze the debtor's account. Instead, the bank must review the last two months of the debtor's account and if the debtor directly deposited exempt government funds into his or her account, the bank cannot freeze the account; instead, they must protect whatever protected funds were deposited during the prior two month period. The new rule applies to state and federal banks, credit unions, and any other financial institution chartered under federal or state law to do banking. The debtor must have "full and customary access" to the protected funds in the account. The bank will then send a notice to the debtor describing that the bank has determined that there is a protected amount of funds in the account and give basic information about how to protect other funds. The rule protects the bank from any liability to the creditor. Thus, the debtor should not have to do anything to protect his or her exempt funds in his or her bank account. The new law protects the funds from freezes and the debtor keeps access to the funds. The only exception to this rule is for garnishments for debts owed to the federal government or state child support agency, namely, federal student loans and child support debt. In these cases, the debtor will have to use the regular "old" exemption notice process.


Because the bank only looks at directly deposited funds under this rule, I recommend that you keep your Social Security and SSI funds directly deposited to your bank account so that you have unfettered access to your money at all times. (If you do not directly deposit exempt funds, then you will have to use exemption notices and wait until your account is unfrozen). As always, it remains a good idea to not commingle exempt and non-exempt funds in the same bank account.


For more information, please refer to the National Consumer Law Center Report online at


Good luck, Clarence, and hopefully this helps you to become more familiar with your rights regarding garnishment, and sets your mind at ease about bank freezes.



This column is written by the Senior Citizens' Law Project. It is not meant to give complete answers to individual questions. If you are 60 years of age or older and live within the Minnesota Arrowhead Region, you may contact us with questions for legal help by writing to: Senior Citizens' Law Project, Legal Aid Service of Northeastern Minnesota, 302 Ordean Bldg., Duluth, MN 55802. Please include a phone number and return address. To view previous articles, go to: Reprints by permission only.