The US Treasury Department has issued new rules that went into effect May 1, 2011 designed to protect federal benefits from being garnished by collection agencies. Federal law already protected those benefits from most creditors. But as a practical matter aggressive debt collectors have been freezing people's bank accounts that contained only Social Security or Veterans or other federal cash benefits, causing a cascade of checks bouncing, shutoffs, and financial nightmares. It wasn't the bank's responsibility to determine whether the law protected those funds or not, it was up to the account holder to exercise her rights of protection. Many low-income seniors and other vulnerable adults didn't even know they had those rights or how to exercise them.
The new rules require banks receiving garnishment orders from commercial collectors to determine if the account electronically receives any federal benefits, and if so, to protect 2 months worth of the benefits for the account holder before turning over any remainder to the collector.
Government debts, like back taxes and federal student loans, can still be garnished and the new rules offer no protection from those collections.
