New Federal Protection for Exempt Bank Funds
A new federal rule that was effective on May 1, 2011, will increase protection for exempt funds in a garnished bank account. Federal law already protects many federal benefits, but it is currently the responsibility of the individual to claim these funds as exempt. Often the bank will freeze a bank account pursuant to an order and the individual must request a court hearing to release the funds.
Under this new Treasury Department rule, an electronic tag will be added to automatic deposits from government agencies. These funds include Social Security, Supplemental Security Income (“SSI”), Veteran’s Administration (“VA”) benefits, federal Railroad Retirement, federal Railroad Unemployment and Sickness benefits, federal Civil Service Retirement benefits and federal Employee Retirement System benefits. Banks are required to exempt all tagged deposits made during the previous two months and protect those deposits from garnishment. The consumer is no longer required to take any action to claim or identify exempt funds. The rule makes banks not liable to creditors for refusing to garnish the tagged funds, even if the money is co-mingled with other non-exempt money.
The National Consumer Law Center estimates that more than 1 million people each year have accounts garnished that contain exempt federal funds. Recipients are often sick or elderly and may be forced to forego needed food and medicine when an account is frozen.
This new rule applies to all federally chartered federal and state banks and credit unions. While there is no cap on the amount of protected funds, the automatic protection only applies to the previous two months. Exempt funds must be deposited electronically to receive the identifying tag. Deposits made by paper checks are still exempt, but the bank is under no obligation to identify these funds or protect them from garnishment. The rule does not apply to military retirement or state issued benefits.
There are many powerful consumer protection laws. If you have a judgment against you and are at risk of a bank or wage garnishment, consult with an experienced bankruptcy attorney and discover how the law can help. Your attorney can discuss your legal options to make the best of a bad situation.
Are People in Need Avoiding Bankruptcy?
Although bankruptcy filings are climbing back to the all-time high of 2 million reached in 2005, there is a growing concern that many Americans in need of bankruptcy protection are not filing. A recent article in USA Today quotes Katherine Porter, associate professor of law at the University of Iowa who says, “[T]he filing rate doesn’t even begin to count the depth of financial pain.”
Are you hurting financially? Bankruptcy can help ease that pain.
Bankruptcy is a federal legal process for declaring an inability to pay your creditors. When you file bankruptcy you get immediate relief. The bankruptcy court imposes an “automatic stay” prohibiting creditors from taking collection action against you while the bankruptcy case is pending. The automatic stay is very powerful and stops lawsuits, wage garnishments, and even foreclosures. Its purpose is to give the debtor some breathing room and an opportunity to decide how to resolve an overwhelming debt problem.
There are typically two different types of bankruptcy cases: chapter 7 and chapter 13. In chapter 7 you eliminate debt without payment while chapter 13 is a repayment plan over three to five years. At the end of a bankruptcy case the court enters an order discharging eligible debts and permanently prohibits creditors from taking collection action against you.
In some cases certain debts are not discharged. The most common types are family support obligations, student loans, and taxes. However, bankruptcy offers significant relief by discharging other debts and freeing up money to pay the non-discharged debt. Chapter 13 can also be helpful by allowing payment of the non-dischargeable debt under the supervision of the bankruptcy court and without fear of lawsuits, wage garnishments, or other nasty creditor action.
The bankruptcy process is very efficient. For most chapter 7 debtors the case will last a few months and requires one meeting with the bankruptcy trustee. The cost of bankruptcy is very reasonable compared to the relief that is given.
If you are hurting financially, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you. There are many options available in the law and can give you real relief from overwhelming debt.
Bankruptcy Versus Bad Debt Judgments
Bankruptcy attorneys know that owing a debt that you cannot repay causes the debtor many headaches. First, there are the collection calls and letters. These collection actions are meant to harass you into paying something on the debt. Since the creditor only has a certain number of years to collect before the statute of limitations runs, after a few years the creditor will file a lawsuit against you. After the creditor obtains a judgment, the statute of limitations clock is reset and the creditor has more time to collect by garnishing wages, or seizing bank accounts or property. In some cases, the creditor may have twenty years or more to collect on a debt! During this time fees and interest can increase the balance of the debt many times over.
An unpaid debt has serious consequences to your credit report. Any debt that is more than 90 days delinquent indicates that the individual is experiencing serious financial problems. A debt stays on your credit report for seven years after the date of the last payment. Even after the debt drops off your credit report, if the creditor sues you the judgment will be reported for an additional seven years.
One of the chief benefits of a bankruptcy discharge is it provides a final resolution of your unpaid financial obligations. The bankruptcy discharge is a permanent injunction ordered by the bankruptcy court against your creditors forbidding any collection action against you, forever. The discharge order is extremely powerful and the penalties for a creditor who violates this federal court order can be severe.
A report of your bankruptcy case will stay on your consumer credit report for ten years after the date you file bankruptcy (not from the date of your bankruptcy discharge as many believe). While on the surface a bankruptcy stays on your credit report longer than a bad debt (ten versus seven years), the truth is that a bad debt can linger and significantly harm your credit score for much longer than ten years. After a bankruptcy your debts are reported as “discharged in bankruptcy” with a balance of “zero.”
If you are struggling with debts you cannot afford to pay, consider filing bankruptcy sooner rather than later. The sooner you discharge your debts, the sooner you can begin your financial recovery. Delay in filing usually results in further harassment, lawsuits, and difficulties. Contact an experienced attorney today and discuss your legal options for discharging your debts.
The Consequences of Ignoring Your Debts
I recently read a newspaper advice column written by a Certified Financial Planner who suggested that, as a practical matter, there is no difference between ignoring your credit card debt and filing bankruptcy. Well, let’s look at the “practical effects” of ignoring your credit card debt:
First, ignoring credit card obligations will cause a persistent series of harassing telephone calls and letters from credit card companies, collection agencies, and finally law firms. Phone calls are systematically made to the debtor’s home and work, and sometimes to third parties including neighbors, extended family, and your employer. The agencies that collect credit card debt are experts at telephone harassment – it is one of their most important weapons.
Bankruptcy, on the other hand, stops all collection calls.
Second, your credit score will be ruined on a continuing basis. For each month that a credit card goes unpaid, the creditor will report negatively to the credit reporting bureau. Additionally, collection agencies will often further harm your credit score by “resetting” the date of last activity when the account is transferred to a new collector.
Bankruptcy stops all negative reporting. Discharged debts should be identified as “Discharged in Bankruptcy” with a zero balance. The debtor’s credit report and score can begin to recover from the date of the bankruptcy discharge.
Third, you can (and will) be sued. The typical consumer will undoubtedly lose a lawsuit over a legitimate debt. The resulting judgment may include substantial penalties, interest, court fees, and attorney fees. A judgment creditor can collect from your wages, your property, and your bank account. While there are some people who are judgment proof, they are the exception and not the norm. Most people have assets that a judgment creditor can attack.
Bankruptcy prevents all lawsuits and even stops collection actions from judgment creditors.
Many consumer advocates have likened credit card debt to an illness. Like any illness, the cure is not found in ignoring the problem, which will only make things worse. If you are sick from credit cards and are unable to pay your debts, consult with a bankruptcy attorney and find the cure!