New Rule Effective on Garnishment by Banks

We have posted few postings in the past about “Judgment Proof” and debtors who are exempt from garnishment of their wages as well as lien on their properties. However, a new treasury rule has been implemented effective May 1, 2011 which will provide more protection to recipients of federal benefits from garnishment of their bank accounts. As we had stated a judgment itself does not mean anything unless a judgment holder has the means available to garnish the wages or otherwise able to execute the judgment. The execution is a dreadful thing because this by itself requires another lawsuit. The first victory by itself is not enough (you can call phyrric victory). You need to find the assets of the debtor, and that is no small task. One such asset is the bank account of the defaulting party. It is no small measure to find it as the debtor had taken many steps to hide his account or has not left enough money for any worthwhile garnishment to take place. Also, he has no job, or has left his last job, and it is difficult to trace his last employer.

The New Rule: Limits to Garnishment:We had discussed that social security benefits cannot be garnished as it come from the federal government, and cannot be attached by any local institutions as this violate the supremacy clause of the federal constitution.

There are few others like veteran benefits, supplemental security income. They also cannot be seized.

Now The Bank Has to Verify:
The ball is rolling back to the banks. If they receive any garnishment orders, the banks must determine if the account holder has protected federal benefits and have been electronically deposited into the account holder’s account. Now, one smart person should make sure that he has no commingled his previous funds, and other income into the same account. Because once they are commingled, they lose their traceable identity and would not be protected.

What This Means for Accountholders:
Only electronically deposited checks are included as Federal benefits received and deposited in a bank account via paper check are not protected by this new rule. The funds protected must be fresh and not older than two months. We suggest that current account holder should only do electronic deposits and not in person paper deposits.


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