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New Laws Concerning Social Security

September 1, 2010

Treasury Department announced a series of new laws that would prohibit debt collectors from freezing bank and garnishing bank accounts belonging to recipients of Social Security and disability for the purpose of satisfying a debt. The proposed laws were published in the Federal Register and citizens will be given sixty days in which to voice their support or opposition to the new legislation. Sen. Herb Kohl (D-Wis) chairman of the Senate Special Committee on Aging praised proposed laws that would prohibit the seizure of Social Security benefits by banks and other entities.

Under a long-standing federal law, Social Security benefits – including those paid to the disabled,  are exempt from being seized by bill collectors. However, once those benefits are deposited into a bank account, there was no law protecting them from debt collectors. Before the new rules were in place, there was no way for banks or creditors to distinguish between different types of assets so any monies that were in the account were subject to being frozen and garnished by creditors. Under the new provisions, banks would have to carefully examine any bank account that had a freeze or garnishment action pending against it to determine whether the account had received any federal benefits within the past 60 days.

Presently, more than fifty million Americans receive some type of benefit from the Social Security Administration (SSA). These benefits include retirement benefits, disability benefits, Social Supplemental Income (SSI), and a host of others. In fact, Social Security is the primary income of  sixty four percent of all Americans aged 65 and older. Of those fifty plus million recipients,  eighty percent choose to  have their benefits direct deposited into their bank accounts each month.

“This rule clarification will ensure that banks can no longer stand between seniors and their rightful benefits. We’re glad to see this administration prioritize the protection of beneficiaries.”

Because most recipients of Social Security benefits are already struggling to budget their households on a fixed income, having what little financial resources they do have tied up in a dispute over a debt can be catastrophic. When an account is frozen, checks may be returned unpaid to the bank. This can lead to charges such as overdraft fees and non-sufficient funds fees being incurred as well as a whole new set of creditors and debt issues to deal with. The only way to fight a garnishment order that has been placed on a bank account is through a lengthy and expensive court process, which most recipients on fixed incomes cannot afford. Those who could have afforded it find themselves unable to because their resources are tied up in the accounts in question.

The SSA estimates that $178 million was seized by creditors from bank accounts funded by Social Security benefits between the years 2006 and 2007, a practice that both politicians and consumer advocates believe should stop.

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