One of the scariest things about carrying debt is the threat of a lawsuit.  This is because a lawsuit usually leads to a garnishment.  In a typical civil, or small claims, lawsuit, a debtor will first be served with a summons and complaint.  The complaint outlines the grounds for the lawsuit and the allegations against the debtor.  If there is no response to the complaint, the creditor can request that a default judgment be entered against the debtor.  Once a default judgment is granted, the creditor can request a writ of garnishment.  The garnishment can be served on a debtor’s employer in order to garnish wages or on a debtor’s banking institution in order to garnish a financial account.  In Arizona, a creditor can garnish up to 25% of a debtor’s wages, and a bank account can be garnished until only $150.00 remains in the account.  It would be a struggle for anyone to lose such a significant portion of their monthly income and can be truly frightening to face a garnishment.

However, in some cases, Uncle Sam may come to the rescue and protect some debtors.  The government being of assistance?  Crazy, but true.  Certain types of income are protected from garnishment by creditors.  In general, federal benefits are exempt earnings.  This includes social security, supplemental social security, VA benefits, Federal Railroad Retirement, Civil Service Retirement and Federal Employee Retirement System benefits.  In addition to these benefits, your particular state laws may protect additional forms of income.  Recently, the Department of Treasury released new guidelines for financial institutions to use in calculating garnishments when federal benefits are deposited into a debtor’s bank account. The guidelines refer only to electronic deposits, not paper checks.  So, it might be good for anyone receiving federal benefits to switch to direct deposits.  The guidelines require the financial institution to conduct a review of the account within in two days of receiving a writ of garnishment.  The institution must note if there is co-mingling between federal and non-federal benefits; if there is a co-owner of the account; what the current balance in the account is; and the nature of the debt underlying the writ of garnishment.  Once the review is completed, the financial institution will protect the appropriate amount of federal funds.  Any excess funds will be subject to the garnishment order and frozen.  Based on these guidelines, it is my opinion that a separate account should be maintained for federal benefits, so that the financial institution can conduct an appropriate review and easily protect the correct funds.  For bankruptcy purposes, this is also an important preventive measure.

As it is in life, all good things have limitations.  While most federal benefits are exempt from garnishment, it is an exemption that applies to some creditors, but not all.  Exceptions are made for Uncle Sam (so he is really only providing half the assistance) and state child support agencies.  So, if you owe the IRS for back taxes, they can still attach the federal benefits in your bank account.  Child support creditors have priority as well.  Which means, never mess with your exes or the IRS.

You have several options available to you to get out of debt, save your assets, and even avoid bankruptcy. Our debt settlement and negotiation lawyers are ready to jump into the fray for you, leading the way to renewed financial security. Let us provide you with personalized debt solutions so you can put this struggle behind you and move forward with a new control over your finances.

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