New Rule Protects Federal Benefit Checks from Seizure by Creditors

A new federal rule effective May 1, 2011, vastly strengthens protections for Social Security, SSI, VA, federal retirement checks, and certain other federal benefits from seizure by creditors. Heretofore, in theory such benefits were protected, but not in practice. Under the current rules, creditors could seize the consumer’s bank funds and it was up to the consumer to hire an attorney to challenge the seizure or garnishment. Needless to say, hardly any consumer successfully challenged the seizures leaving many consumers unable to pay the rent.

The new rule requires all banks and credit unions to determine whether exempt federal benefits have been electronically deposited within the past preceding two months. If so, the bank must protect the money deposited in that period. Under the new rule, the consumer need not take any steps to assert an exemption. The bank has an unconditional obligation to make the protected money available to the consumer. The bank is even prohibited from complying with any state order to pay the protected funds to the creditor.

Exempt funds delivered by paper check are not covered, which is another reason all beneficiaries should switch to electronic deposits. Beneficiaries may also obtain a MasterCard issued by Comerica Bank to receive exempt funds.

The National Consumer Law Center in Boston, MA, played a leading role in the four-year effort to win the new protections for consumers receiving federal benefits.


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