Automatic protection: Veterans and Social Security benefits

Debt collectors can seek out money in your bank accounts if they win a judgment against you. However, for those who receive benefits from the Veterans Administration or Social Security, at least two months' of income is automatically protected if your benefits are direct deposits.

The law requires banks to review deposits to determine whether income is received from either Social Security or the VA before freezing assets in response to a garnishment. Garnishments typically only occur once a creditor has received a judgment in court against you on an unpaid debt.

If the bank finds that you have two months' worth of VA or Social Security income in the account, it cannot freeze that money. For example, if you receive $500 in benefits a month and have $1000 in the account, the bank must keep that money available to you. If you have $2,000 in the account, however, the bank can freeze $1,000 of it in preparation for payment on the garnishment.

Individuals who receive benefits via paper checks have fewer protections. It's more difficult for a bank to determine where manual deposits come from, so they aren't required to protect monies made in this manner. Instead, the burden of proof will fall on you, and you might have to present evidence in court showing that income is from federal benefits.

Benefits that are loaded to a prepaid debit card are protected in the same way that direct deposit benefits are. That protection is limited, however, because government agencies acting as creditors, such as the IRS or student loan agencies, can garnish federal benefit payments.

When facing garnishment of your bank accounts, understanding debt relief and bankruptcy options is important. Seeking a legal way out of untenable debt situations can be freeing whether you are living on Social Security or some other type of income.

Source: Consumer Financial Protection Bureau, "Can a debt collector take my Social Security or VA benefits?," accessed Sep. 18, 2015

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