New federal rule protects accounts of seniors, vets

On May 1, an "interim final" federal rule  took effect which strengthens protections for bank accounts used to collect federal benefits. This is welcome news for low-income clients Legal Aid serves - such as retirees, veterans and disabled persons. This rule will limit creditors' ability to freeze and take 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.

Click here to read a related story from The Plain Dealer, quoting Legal Aid attorneys Anne Reese and David Dawson: "New federal rule protects accounts of seniors, vets"

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.