Exempt funds

[GoingDown]

In my opinion-- paranoid as some might say-- it is better to be safe than sorry with your money. As a rule of thumb, once someone has a judgment against you, never leave more money in a checking account than you can afford to lose.

It may be a pain in the neck to live the "judgment proof" lifestyle, but it does make it very difficult for judgment creditors and their attorneys to get at your money.

There were some older posters on here a few years ago who could tell you horror stories of having the funds they thought were exempt seized in their checking accounts. It does happen.

The last checking account I had before I closed it sent me a list of the fees they could charge account holders, and one of them was a $75 fee for just responding to a garnishment order. $75. Poof! Gone! That's for responding. Even if they said no to the judgment creditor. And from my relatives' experiences and personal friends' experiences, at the very least, the bank is going to tie up those funds for a few days while they have their attorney look over the garnishment documents that were served upon them, and in most cases, they are going to wait until you go to court, win, and then serve them with more documents from the court saying it is okay for them to release the funds back to you. In the meantime, checks are bouncing. Preauthorized payments are bouncing. Your debit card is being declined for purchases. And guess who gets to pay all the fees associated with this? That's right. You do. By the time your checking account gets unfrozen by the court, you may not have much left.

Having a checking account may be convenient, but it can be very costly as well once someone gets a judgment against you.

I have yet to hear of a pre-paid debit card balance being seized by a judgment creditor. I think about the only way that could happen is if you told them about it and they convinced a judge to order you to turn it over to the judgment creditor.

But, to be on the safe side, I only keep enough money in mine to pay the bills and buy stuff from Amazon.com as needed. However, it should be noted that I don't get Social Security nor any direct deposits at all. I get paid in cash or by a check which I stand in line to cash at the local bank branch. So, to get money on my pre-paid debit card, I have to go to Wal-Mart and load it with cash. So it is a little bit of a different situation.

[DYLAN150]

Yea, I sent my Credit Union and Bank an e-mail asking them about protected funds. This was a week ago, no reply so far. I don't expect to receive one either. Going to all paper checks to be safe.

[WhatMoney]

Yea, I sent my Credit Union and Bank an e-mail asking them about protected funds. This was a week ago, no reply so far. I don't expect to receive one either. Going to all paper checks to be safe.

E-mail will never work. Banks ignore e-mail for legal questions.

If you want to get an answer about "protected funds", you need to take a copy of the State statutes that claim you have protection for exempt deposit accounts to your bank or credit union and only speak with the manager. Customer service types are useless for legal questions. The branch manager is also likely useless, as in knowing nothing about the exemption law, but by speaking IN PERSON you get a commitment from him/her to relay your questions to their legal department. Then you must follow up every few days until they decide to answer you. This is standard procedure for getting anything done with a financial institution when you are not one of their high income earning customers. Again e-mail and telephone calls are useless. You must confront them in person to ever get an answer (other than no or f*ck off).

If you are going to all paper Treasury checks for SS you risk lost mail and the inconvenience of having to drive somewhere to cash them. Banks around here will not even cash US Treasury checks unless you deposit them in your account, and then you must wait one day until you can withdraw any money with a money order or cashiers check, for example, which is another trip. I call that inconvenient and a waste of my time. With direct deposit the funds are available the same day and you don't have to drive anywhere. If you live close to a WalMart then life is easier. The closest WalMart here is an hour drive through traffic, one-way - I've never been there in my life.

BTW, I don't recall, but do you already have a judgment against you? It really makes no sense to inconvenience yourself by going all cash unless you have a judgment or expect to get one soon, meaning you have already been served.

And if your income is exempt there are many ways to maintain direct deposit and stay protected, using cash loaded debit cards that also accept direct deposit, if you can't get your bank to agree to protect you.

[DYLAN150]

WhatMoney: No judgements yet but my checks go to Bank of America and I owe them for two credit cards. I don't know how long I can owe them before they take the money out of my accounts. Better be safe than sorry.......

[DYLAN150]

Wrote an email to comerica bank which handles the social security direct express card. Here is what they wrote back:
Thank you for contacting Comerica Bank. We appreciate the time you have
taken to send us a message.

Comerica Bank does not have access to your Direct Express Card information.
If you have any questions regarding the card or the program, Direct Express
contact customer service:

[GoingDown]

My guess is that they don't have access to Direct Express Card information because, like I said before, this is not a checking account, and will not be treated the same way as a checking account.

I have yet to hear of a judgment creditor seizing a pre-paid debit card, because their usual methods for finding checking accounts simply does not work with pre-paid debit cards.

Just like skip-tracers have a difficult time finding pay as you go cell phone numbers of debtors because the usual methods don't work with them. They aren't like a landline phone, nor are they like a contract cell phone.

About the only way they could find out such information would be to do a Debtor's Exam [which is extremely rare], and at that time you might tell them about it, but also at that time, they would have to know that the money on the card is from S.S., and so it is exempt from garnishment.

That being said, I would still not keep more money than what is necessary to pay utility bills and make online purchases. I would withdraw the rest each month promptly, so that if the worst case [and very unlikely] scenario did happen, they wouldn't get very much of your money. The other reason I would do that is because, just like all debit cards and credit cards, things like theft, identity theft and credit card (or debit card) fraud can occur, and while you are waiting for VISA or MasterCard to investigate the fraud and then restore your balance to your card, you won't have access to it for awhile. But if most of your money is in cash in a well hidden area, you still have access to it, no matter what happens to your card.

[DYLAN150]

GoingDown: Thanks, that's what I will do. BTW, my neighbor who is on Social Security disaiblity just got his checking account garnished by a three year old debt. Now he is fighting with the bank to get it back and they charged him a $50 fee for this so far. The bank says "yes" it is protected funds but they must go by the court order, so it will take a few weeks to get to the bottom of this. Paper checks to my home look better all the time.

[GoingDown]

Yes, this is what I have heard over and over from many different people about supposedly exempt funds being seized in checking accounts.

The wages are exempt, but once they hit a checking account, they can be attacked by judgment creditors. And the bank won't be on your side. They will follow the court order for garnishment, until you get a judge to decide that these funds are exempt, and meanwhile you have no access to them, and the bank fees begin to mount up.

Moderators: Why don't we make this a "sticky" because this question keeps getting asked over and over again in the Collections forum? Okay?

[WhatMoney]

GoingDown: Thanks, that's what I will do. BTW, my neighbor who is on Social Security disability just got his checking account garnished by a three year old debt. Now he is fighting with the bank to get it back and they charged him a $50 fee for this so far. The bank says "yes" it is protected funds but they must go by the court order, so it will take a few weeks to get to the bottom of this. Paper checks to my home look better all the time.

The reason your neighbor had his SS disability garnished and frozen by the bank is that there is no "protected funds" law in WA. His funds were exempt but not protected, and so he must go through the normal process for getting exempt funds released.

Even in a state where there are no laws that require banks to protect exempt funds, he could have prevented any delays in getting the funds. He would first have to have set up a Social Security deposit account ONLY, with NO other deposits, or even interest payments. Then he would need notify the bank, in person and with a letter informing them that this was a Social Security exempt deposit account. This letter, or form would need to be signed by a bank official and placed in his account record.

Then, if the bank froze his funds there would be no excuse for the bank to not release his funds without a court order. This can often be done by the bank manager with a phone call to the sheriff and judgment holder attorney. I have seen funds frozen on Friday, and released on Monday. And this was before there were any laws requiring banks to protect funds in Oregon. Remember the bank has 10 days in most states before they must turn the funds over to the sheriff or creditor. That is plenty of time to reverse any freezing of exempt funds.

The problem I suspect is your neighbor took none of these pro-active measures to protect his account. And if he waited beyond the 10 day deadline to respond it becomes more difficult to get the creditor to return the funds. Even if you are just going through the usual exemption form process with the court, you must act quickly. In most cases, once the judgment attorney is informed by the bank that your funds are exempt, he will cancel the garnishment, and the bank will release the freeze. But the best policy is to get the bank to agree in advance to protect funds as I've suggested above. Almost no one on Social Security does this, and so they get screwed.

There are laws on the books in Oregon, California, and New York (that I know about) that specifically allow banks to refuse garnishment orders for exempt funds and protect the banks against legal liability. Since this has been a national issue for at least 4 years, eventually there may be Federal banking laws that force banks to protect exempt funds from garnishment. Of course the odds of this consumer protection decreases as more Republicans get elected to Congress - and if the Administration turns Republican next election, you can forget about federal consumer protection.

[OHBOY]

[QUOTE=WhatMoney;496878]The reason your neighbor had his SS disability garnished and frozen by the bank is that there is no "protected funds" law in WA. His funds were exempt but not protected, and so he must go through the normal process for getting exempt funds released.

Even in a state where there are no laws that require banks to protect exempt funds, he could have prevented any delays in getting the funds. He would first have to have set up a Social Security deposit account ONLY, with NO other deposits, or even interest payments. Then he would need notify the bank, in person and with a letter informing them that this was a Social Security exempt deposit account. This letter, or form would need to be signed by a bank official and placed in his account record.

Then, if the bank froze his funds there would be no excuse for the bank to not release his funds without a court order. This can often be done by the bank manager with a phone call to the sheriff and judgment holder attorney. I have seen funds frozen on Friday, and released on Monday. And this was before there were any laws requiring banks to protect funds in Oregon. Remember the bank has 10 days in most states before they must turn the funds over to the sheriff or creditor. That is plenty of time to reverse any freezing of exempt funds.

The problem I suspect is your neighbor took none of these pro-active measures to protect his account. And if he waited beyond the 10 day deadline to respond it becomes more difficult to get the creditor to return the funds. Even if you are just going through the usual exemption form process with the court, you must act quickly. In most cases, once the judgment attorney is informed by the bank that your funds are exempt, he will cancel the garnishment, and the bank will release the freeze. But the best policy is to get the bank to agree in advance to protect funds as I've suggested above. Almost no one on Social Security does this, and so they get screwed.

__________________________________________________ _______________________

Wonder if all of this would also apply for IRA exempt funds that are held in a brokerage account...?

[WhatMoney]

Federal regulations protecting bank accounts from levy of exempt government deposits

Finally! Effective May 1st, 2011 there are new Federal regulations protecting all bank accounts from a levy of exempt government funds. It also prohibits banks from taking any "legal fees" or other fees from the protected exempt funds. Basically the last 60 days of exempt direct deposit funds are protected from a judgment creditor garnishment order - the bank MUST determine if the account contains exempt funds and refuse to freeze those exempt funds.
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A new federal rule that strengthens protections for bank accounts used to collect federal benefits is welcome news for retirees, veterans and disabled persons, according to a lawyer for the National Consumer Law Center.

The “interim final” rule was issued February 23, 2011, and will take effect on May 1, 2011. It will limit creditors’ ability to freeze and take funds from accounts that contain Social Security, Supplemental Security Income (SSI), VA and other federal benefits. These benefits, which are legally protected from court-issued garnishment orders, are critical to the survival of many recipients.

“We applaud the work of the Treasury Department and the other agencies to safeguard these essential benefits, and the leadership of Sen. Max Baucus on this issue,” said Margot Saunders, an attorney with the Center. “All too often, elders, veterans, and disability benefit recipients who rely on these benefits for their basic needs have been unable to access them for extended periods because of creditor-imposed garnishment freezes.”

Social Security, Supplemental Security Income (SSI), VA, and similar federal benefits are intended to meet beneficiaries’ daily needs. Federal law makes these funds immune from seizure by creditors.

But in practice, creditors frequently obtain court garnishment orders so that banks then freeze bank accounts containing protected funds. A beneficiary may be unable to access urgently needed funds for weeks or months.

Often, the paperwork and procedures needed to end an illegal freeze prove too daunting for a recipient, so that a bank turns over supposedly “untouchable” funds to a creditor.

The new rule prohibits the practice of denying beneficiaries access to these essential funds in bank accounts. It requires all banks to determine whether an account contains protected funds. If an account contains protected funds, the bank is required to protect two months of benefit payments from garnishment. Protection of more than two months of benefit payments requires additional court filings by the beneficiary.

In announcing the rule, the agencies stated that its framework could be expanded in future years to protect other federal payments such as military retirement.

“There are still many other steps that need to be taken to make bank accounts safe,” Saunders said. “But this new rule will give peace of mind to many elders, veterans, and disability benefit recipients.”

http://www.consumeraffairs.com/news0...-benefits.html

The analysis and all regulations are published here:

http://www.federalregister.gov/artic...-payments#h-12

The battle for Federal regulations to protect exempt government benefits from illegal seizure began with congressional hearings in September, 2007. Nearly four years later they will be a reality.

[GoingDown]

Finally! Effective May 1st, 2011 there are new Federal regulations protecting all bank accounts from a levy of exempt government funds. It also prohibits banks from taking any "legal fees" or other fees from the protected exempt funds. Basically the last 60 days of exempt direct deposit funds are protected from a judgment creditor garnishment order - the bank MUST determine if the account contains exempt funds and refuse to freeze those exempt funds.
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What if the checking account has 61 days of exempt direct deposit funds?

Wouldn't you have to withdraw any money deposited before the last 60 days?

And who determines this? Someone at your bank? The court?

Does it say anything about what fees the bank is allowed to charge you for responding to a court order (garnishment)?

I know my last checking account was at a bank which explicitly stated in writing that they would charge a fee of $75 just for responding to a court order such as a garnishment.

I have heard of some of them even charging their attorney's hourly rate for responding to the court order, which can easily wipe out a small checking account balance.

Your bank still has to fill out paperwork and respond to the court. They often have their lawyer look at it and respond to it, and well, they have to pay someone to do these things.

While it is a step in the right direction, I would still be wary of ever leaving more money in a checking account than you can afford to lose, once you have a judgment against you.

[WhatMoney]

Your questions are listed in bold below.

GD, all of your questions/concerns were answered in detail in the references I provided. But I'll try to answer your questions anyway.

What if the checking account has 61 days of exempt direct deposit funds?

The purpose of these rules is protect two months of exempt income. Most government programs direct deposit on the same day of the month every month. The actual rule looks back two months based on the day preceding the day of review by the bank. So for two 31 day months, the lookback period would be 62 days.

For example, the bank receives a garnishment order on Sept. 1. They process the order on Sept. 2, they are allowed 2 days to process. They look at all exempt deposits from midnight on July 1 to midnight on Sept 1 (62 days) to determine the protected amount. Any deposit on Sept. 2 is not part of the levy, since the levy is only good for the day it was received by the bank. The protected amount is whatever money is on deposit on Sept. 1, up to the two month limit.

The interim final rule defines the lookback period as a two month period beginning on the date preceding the date of the account review. The two month lookback period will ensure that in almost all cases, the protected amount will include two benefit payments, as urged by consumers and consumer advocacy groups. The Agencies conducted research on Federal benefit payments covered by this rule over a 7 year period that showed that a 60 day lookback period will capture at least two payments in 95% of cases, whereas a two month lookback period measured date-to-date will capture at least two payments in 99% of cases.

Wouldn't you have to withdraw any money deposited before the last 60 days?

Any amount of money that exceeds the two month lookback is not protected. So yes, if you wanted to avoid the usual court exemption process for removing a banking freeze and garnishment of your exempt funds, you would not leave more than two months income in your account.

And who determines this? Someone at your bank? The court?

The bank determines the amount of protected funds, based on these very specific rules. Each ACH exempt transfer will be encoded with an "XX" in the header name, so anyone that can recognize XX can easily determine the protected amount. In reality the banks are already modifying their programming to make this process automatic. It's estimated that 95% of all banks will have this process automated by the time the rules go into effect in May.

The courts have nothing to do with this - that is the whole idea of the new regulations - to keep the court exemption process out of the picture. The banks also have a safe harbor protection against any court action. The bank only needs to notify the depositor and the court that the funds were exempt, and hence the garnishment was rejected. The judgment creditor does not need to be notified by the banks why he didn't get his money. I like that part.

Does it say anything about what fees the bank is allowed to charge you for responding to a court order (garnishment)?

Yes, the banks will not be allowed to charge any fees to the account holder for responding to the court order, unless there is unprotected money in the account. If a couple receives $4000 in social security over a two month period, then only funds over the $4000 will be subject to any bank fees.

I know my last checking account was at a bank which explicitly stated in writing that they would charge a fee of $75 just for responding to a court order such as a garnishment. I have heard of some of them even charging their attorney's hourly rate for responding to the court order, which can easily wipe out a small checking account balance.

Times are changing GD. There will be no bank fees or attorney fees that can be taken from the protected amount of funds in the account.

Your bank still has to fill out paperwork and respond to the court. They often have their lawyer look at it and respond to it, and well, they have to pay someone to do these things.

So what? First the process will be automated so the janitor could handle the paperwork. The account holder is the victim here, and should not be charged for someone else attempting to break the law. These new regulations are clear and fair. A bank can always close your account after you receive a garnishment, claiming you are not a profitable customer. There will always be another bank around the corner willing to take your US Treasury direct deposits. An impact analysis was done on how these rules would affect smaller banks and credit unions, for example. And it was determined that there would be no measurable effect on their profits. You can read all about all the 500+ questions these Agencies considered before this final rule making. These regulations were carefully researched after banking industry feedback, and the banks generally agree that this kind of system to prevent abuse of the disabled, the elderly, and veterans, was needed.

While it is a step in the right direction, I would still be wary of ever leaving more money in a checking account than you can afford to lose, once you have a judgment against you.

That's up to you. You won't lose two months of exempt direct deposit funds no matter how wary you are. You don't have any exempt funds, and being younger you don't mind the inconvenience of an all cash underground lifestyle. Seniors in their 70's and 80's and 90's should not have to put up with that kind of crap. This law gives some peace of mind to retirees, the disabled, and veterans who depend on their exempt monthly government benefits to survive.

These new regulations also do not require a depositor to notify a bank in advance that their deposits are exempt. The exempt status is clear from the ACH coding, and the banks only have to follow the regulations from the regulatory agencies that determine the banks existence.

Also, these rules will trump any state laws about multiple day garnishments. The garnishment can only be effective on the day the bank receives the court order. No further days of levies will be honored if the account has exempt deposits. This is already the case in Oregon, but in some states the creditor can keep stealing exempt funds after the first day using the original garnishment. The states will need to change their statutes now to make this multiple day levy of exempt funds illegal.

These federal regulations are the minimum requirement to protect exempt funds. If a state has further rules that provide more protection, then the state rules still apply. In my state the protection goes up to $7,500 per account holder, for example.

[GoingDown]

Thanks for taking the time to respond. This is very useful information for anyone who has exempt wages, and I'm glad this is now a "sticky" so people facing this situation in the future will be able to easily find this information.

They can now read through all the information and make an informed decision for themselves.

[GoingDown]

I am adding a link to this thread for those who are looking for information about JOINT BANKING ACCOUNTS AND GARNISHMENT

http://www.bkforum.com/showthread.php?68583-Joint-Banking-judgement-against-1