April 19, 2010 - A loophole currently exists that allows debt collectors to freeze bank accounts in order to seize veterans' benefits. In an effort to stop this behavior, the Obama administration has proposed a new set of rules published by the Treasury Department.
Banks have been at the mercy of unclear rules speaking to when bank accounts can be frozen in the first place. Because of the rules being clouded as they are, there are many instances of bank accounts being unfairly frozen creating undeserved problems for veterans relying on that money for their existence.
Despite current laws, creditors have been using court orders to garnish bank accounts receiving veterans' benefits via direct deposit. Federal laws currently in place protect veterans' benefits from being seized by creditors with few exceptions:
Many veterans rely on their veterans' disability payments as their only income on which to survive, so having their accounts frozen presents many undue hardships. To contest the garnishment order, veterans will have to go to court. With no money available, however, hiring legal representation can be difficult.
Should the proposed rules pass, banks would be forced to review all garnishment orders to determine when, and in what amount, the bank account being affected by the garnishment order received the veterans' benefit deposit. It is hoped this will create a safe harbor provision protecting banks from liability following a garnishment. It is hoped these proposed rules will prevent any more undue issues for those veterans relying on their rightfully owed benefits.
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