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The Law

Social Security Recipients Devastated by Bank Account Seizures

New Treasury rule closes loophole to protect benefits from illegal freeze

Social Security: Banks Freezing Assets

— Cultura/Getty Images

En español | Life is hard for Patricia Cole, 59, of Morris, Ala., and thanks to her bank, it recently got a whole lot harder. Cole, who is partially blind and raising three grandchildren alone, lives entirely on Social Security disability payments. But in March, her bank froze the account where those payments are deposited and sent all the money in it to a court handling an old debt of her son’s. Cole had to call in a lawyer and spent a month getting the funds returned.

In the interim, she bounced checks, racked up overdraft fees, took money out of her life insurance policy to pay her bills, and came dangerously close to losing her home to foreclosure—to the very same bank, BB&T, that had sent off her money to the court, making it impossible to pay the mortgage on time.

“It all made me kind of sick,” says Cole.

Her problems resulted from a seven-year-old debt owed by her son, whom she had added to her checking account last year when her husband died, so there would be someone able to pay her bills if she fell ill. He had never used the account, she says, and it contained none of his money, only her Social Security disability payments.

“It is the client’s responsibility to notify the court and have the court determine if the funds are indeed exempt and therefore notify the bank,” said Merrie Betbeze Tolbert of BB&T. “When the court ordered that the funds be held for garnishment, the bank had to comply with the court order. Once we were told of the circumstances, we decided to do everything possible to ease the situation for her, which included returning the overdraft fees.”

Tolbert also disputed reports from Cole and her attorney that the garnishment threatened Cole’s mortgage. “The situation with Ms. Cole was resolved in less than a month,” she said. “Our mortgage clients are not subject to foreclosure for missing one payment.”

The case is complex, but here’s the bottom line: According to the law, Social Security retirement and disability benefits and veterans benefits are exempt from seizure by private debt collectors. But banks, claiming that they have no way of knowing where the money in an account came from, routinely freeze accounts containing federal benefits when they get a court order to do so.

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