Most federal benefits are exempt from garnishment by most creditors. The exemption protects the federal benefit at its source, the pertinent check-issuing agency of the federal government, and after the funds are deposited into a bank account or onto a debit card. Exempt means the federal benefits cannot be garnished or intercepted by the creditor or debt collection agency before or after the benefit reaches the employee or recipient.
Exempt Federal Benefits
Not all federal benefits are exempt, but many are. Here’s the standard litany of exempted benefits, though if yours is not listed, be sure to inquire from the federal department responsible for providing the benefit:
- Social Security Benefits
- Civil Service and Federal Retirement and Disability Benefits
- Supplemental Security Income (SSI) Benefits
- Military Annuities and Survivors’ Benefits
- Merchant Seamen Wages
- Service Members’ Pay
- Veterans’ Benefits
- Student Assistance
- Railroad Retirement Benefits
- Longshoremen’s and Harbor Workers’ Death and Disability Benefits
- Foreign Service Retirement and Disability Benefits
- Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Working Outside the United States
- Federal Emergency Management Agency Federal Disaster Assistance
Exceptions to Exempt Federal Benefits
Garnishment orders arising from consumer loans, unpaid medical bills, real estate debt and basically any kind of personal liability are all unenforceable against the aforelisted federal benefits. However, federal law declines to recognize these exemptions for certain debts.
When a garnishment order seeks to collect such debts as below, the exemption is off:
For these debts, garnishments at the source or from a bank account can be accomplished by following the normal garnishment procedure.
But that doesn’t mean the debtor should sit back passively and let it happen. Federal and state law protections and limitations may still apply, either prohibiting the garnishment altogether, or limiting its scope. These must normally be asserted by filing responsive paperwork in a timely manner, or requesting and attending a court hearing.
For example, Social Security benefits are limited to 15% of a levy to collect delinquent taxes. The first $750 of monthly federal benefits for non-tax debts cannot be touched at all by garnishment. Lump-sum death and Social Security benefits for children are even exempt from the 15% tax limitation.
At the state level, child support and alimony garnishment orders are presented via the national Court Ordered Garnishment System. Here the amount subject to garnishment depends on the state where the employee or recipient lives. Garnishments are then capped by the maximum amount allowed by that state’s laws, or the maximum amount allowed by the federal Consumer Credit Protection Act (75% of disposable income or 30 times minimum wage, whichever is greater).
Responding to a Garnishment Order
If a creditor unadvisedly seeks to garnish a protected federal benefit directly from the federal government, the government agency involved will quickly notify the creditor in no uncertain terms that the benefit is exempt. The employee or recipient generally need not do anything to protect the benefit, as processes have long been in place to protect it. It is a different story if the creditor instead seeks to garnish the employee or recipient’s bank account.
Until a few years ago, financial institutions – banks, credit unions, and like – would simply freeze an account when served with a garnishment order, and then let the creditor and account holder sort it out before the court. This practice created great hardship for many federal benefit recipients, as the court process was often a slow and tortuous one.
That changed several years ago with the issuance by the federal Treasury Department of what is now called “The Final Rule." In short, this Rule requires the bank to identify and add up all the protected federal benefits directly deposited into the account over the previous 60 days, and keep those funds available to the account holder. If the balance has fallen below that sum, then the entire balance must remain unfrozen.
For federal benefits deposited into an account indirectly, such as by transfer from another account, check or debit card, the employee or recipient of the federal benefit must timely request a court hearing to challenge the garnishment order. At the court hearing, evidence that the account being garnished contains protected federal funds must be presented to the court.
All said, things can get very complicated very fast. Seeking assistance from free online resources, legal aid, and calling the federal benefits departments involved, is always a smart move.