Noteboom The Law Firm

New Law Protecting Bank Accounts Helps Veterans

March 2, 2011 - The federal "Interim final" rule was published February 23, 2011 but will not become effective until May 1, 2011. This new law will benefit not only veterans but retirees and disabled persons. The rule will reinforce protections already in place on bank accounts used where federal benefits are deposited.

The rule will operate to set parameters binding creditors attempting to freeze or remove funds from bank accounts holding federal benefits such as Social Security payments, Supplemental Security Income (SSI), and veterans' benefits. Federal funds such as these have been determined to be critical to many recipients' survival and therefore are not able to be garnished, even with a court order.

Senator Max Baucus (D-MT) worked with the Treasury Department to pass this rule. Despite federal benefits such as these being immune from garnishment, creditors will still seek and be granted garnishment orders. Banks will then comply with the order and freeze the account, protected funds and all. Those protected funds are usually the only money the recipient has, and should the account be frozen, it could be weeks before access is granted to that money. That means weeks without access to money for food, rent, utilities, and other needs.

The new rule will not allow banks to deny beneficiaries access to bank accounts holding protected funds. Under the new rule, the burden is put on the bank to determine if the account holds protected funds prior to freezing. If protected funds exist within the account, the bank must protect 2 months worth of federal benefits payments from being frozen. Anything needed beyond that requires a beneficiary to get a court order.

This rule is only one step towards protecting the bank accounts of those receiving federal benefits. Future years will likely see more benefits protected under similar rulings.