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Garnishing Bank Accounts Containing Federal Benefits

  • Published: 2011-12-12 (Revised/Updated 2017-04-27) : Author: Arizona Law Group of Trezza & Associates, LLC : Contact:
  • Synopsis: Before the rules went into effect impoverished Americans receiving federal benefits suffered while accounts were frozen by creditors looking to garnish their assets.

Quote: "The new rules outline the procedures that banks must follow when they receive a garnishment order on an account that the holder deposits federal benefits into."

Main Document

Congress passed rules offering protections for need-based benefit payments so that recipients who need them can access them without creditor interference through freezing bank accounts.

Garnishment means collecting a monetary judgment against a defendant by ordering a third party (the garnishee) to pay money, otherwise owed to the defendant, directly to the plaintiff. In the case of collecting for taxes, the law of a jurisdiction may allow for collection without a judgment or other court order. Under U.S. federal tax law, a garnishment by the Internal Revenue Service (IRS) is a form of administrative levy. In the case of an IRS levy, no court order is required.

In 2011, new federal rules went into effect for creditors looking to get at debtors' bank accounts, including Arizona bank accounts.

Before the rules went into effect, every month more than 100,000 impoverished Americans who received federal benefits suffered while their accounts were tragically frozen by creditors looking to garnish their assets, according to the National Consumer Law Center.

In response, Congress passed rules offering protections for need-based benefit payments so that recipients who need them can access them without creditor interference.

Benefits Exempt from Garnishment

Federal and state laws prohibit creditors from garnishing a variety of benefits - such as Social Security retirement and disability benefits, in addition to other benefits for veterans, the poor and those with disabilities.

Lawmakers put these protections into place because those who receive such benefits are of extremely limited means and rely on that money for basic necessities.

Creditors Freeze Accounts

Despite the fact that creditors cannot access these benefits, they often serve debtors' banks with garnishment orders from the court, causing the banks to freeze bank accounts while the bank determines whether the creditor can access the money in the accounts.

People often need the assistance of an attorney to unfreeze the account - an expense that benefits recipients can hardly afford. Unfreezing the accounts also takes time, which can be ruinous for many benefits recipients, who often live from check to check.

New Garnishment Rules

The new rules outline the procedures that banks must follow when they receive a garnishment order on an account that the holder deposits federal benefits into.

The banks must now find the amount of federal benefits that the holder deposited into the account for the two months prior to the time the banks receive the garnishment order, and then allow the account holder to have access to that amount of money, or the balance of the entire account, whichever is lower, while the bank determines how to respond to the garnishment order.

The government will also be making it easier for banks to track garnishment-exempt federal benefit deposits into accounts by adding electronic tags to the deposits.

Garnishment actions by creditors are a hassle for everyone - not just those who receive federal benefits. If you are facing a garnishment action by creditors, contact an experienced bankruptcy attorney who can advise you of your options.


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