When Creditors Seize Social Security Payments

Edward McDermott has his Social Security check electronically deposited into his bank account each month. But in May, when the Brooklyn, N.Y., man tried to withdraw money, he found that creditors had a court order to seize funds from the account—known as garnishment—to collect on late credit card debt. The action prompted the bank to freeze his account for three weeks.

The bank “can freeze your account, but it will take weeks to get your money back,” says McDermott, 61.

Freezing and garnishing accounts that hold Social Security, SSI and veterans benefits is illegal in most instances, yet, according to a recent report, 20 financial institutions garnished thousands of accounts with federal benefits during a 12-month period.

Social Security recipients are often vulnerable to garnishments because many of them use electronic deposit, which makes it easier for banks to freeze accounts. Banks are obligated to comply with state laws regarding garnishment or risk huge fines, says Carol Kap­lan, spokeswoman for the American Bankers Association.

The U.S. Senate is considering a bill that would prohibit use of federal funds to promote direct deposit to SS beneficiaries until garnishment safeguards are in place. AARP has filed court briefs to stop bank garnishments of SS funds and has urged federal regulators to take action to protect Social Security recipients.