After a creditor sues the debtor for failing to pay back a debt and wins a judgment, the debt collector can receive a court order to collect the debt through the debtor’s bank or credit union. This is called a garnishment. A wage garnishment occurs when a creditor takes a portion of the debtor’s paycheck, or any other income to collect the money that the debtor owes.
Federal benefits include, but not limited to:
- Social Security benefits
- Supplemental Security Income Benefits
- Veteran’s benefits
- Civil service and federal retirement and disability benefits
- Service member pay
- Military annuities and survivor benefits
- Federal student aid
- Railroad retirement benefits
A U.S. Department of Treasury rule requires banks to automatically protect certain federal benefits from being frozen or garnished, IF these benefits are directly deposited into the debtor’s account. However, there are exceptions to this rule.
- Government debts or child/spousal support. federal benefits may be garnished if the debt is for federal taxes. federal student loans. Child/spousal support, or other government loans. However, some federal benefits, such as Supplemental Security Income, are protected from garnishment even if the debt is government debt or child/spousal support.
- Paper checks. If the debtor receives some federal benefits, such as social security or veteran’s benefits, by a check and then the debtor deposits the check into the bank account, that money may not be protected. The bank does not have to duty to protect 2 months’ worth of that benefit in the account automatically. Thus, the debtor’s account balance may be frozen.
Even if the federal benefits are received through prepaid card, that prepaid card or a prepaid account will still be automatically protected from garnishment.
To learn more about Bankruptcy, please contact an attorney.