Bankruptcy

Protecting Public Benefits from Garnishment

By Katie Porter

 Mark Budnitz at Georgia State University College of Law, in coordination with the National Consumer Law Center, is asking law professors to sign on to a letter supporting a proposal by Treasury and other federal agencies to mandate crucial protection for persons receiving federal benefits such as Social Security. Regular Credit Slips readers may remember that guestblogger Nathalie Martin's post on this problem, "Think Public Benefits are Exempt from Execution? Think Again." Prof. Budnitz succintly describes the problem. He writes:

"These funds are exempt under federal statutes.  Congress intended the funds to be beyond the grasp of creditors.  Nevertheless, these funds are routinely frozen and seized by debt collectors. When a debt collector obtains a judgment, it serves a garnishment order on the consumer's bank.  The bank freezes the consumer's account; often the bank turns over the garnished amount to the debt collector without first giving the consumer any notice.  Most banks simply honor the state court order; they do not examine the bank account to determine whether the funds are exempt.  For consumers whose primary or sole income are federal benefit payments (e.g., Social Security, SSI, veterans benefits), the effect is devastating.  The consumer often first learns of the bank's freeze when checks start to bounce.  He or she has no money for food, medicine and other necessities.  The proposed regulation would correct this problem.  It sets out a clear, uniform procedure for banks to follow. It prohibits the freezing and the seizure of exempt funds."

    Over twenty law professors have already signed on to Budnitz's letter.  In addition to supporting the proposed regulation, it recommends a few improvements. If you are a law professor and you want to sign onto this letter, please contact Prof. Budnitz who will give you further information. Members of the public will be able to comment soon; instructions are here.

Full post as published by Credit Slips on June 01, 2010 (boomark / email).