Some benefits exempt from your creditors
By Michelle Singletary
The reports just keep coming that consumers are having difficulty paying their debts.
One of the latest is from the Consumer Credit Delinquency Bulletin of the American Bankers Association. It reported that the percentage of home equity lines of credit more than 30 days past due rose 14 basis points to 1.10 percent during the first quarter (seasonally adjusted). Bank card delinquencies rose 13 basis points to 4.51 percent. Auto and personal loan delinquencies also increased.
"It was a tough quarter for some people," said James Chessen, the ABA's chief economist. "Faced with rising food and gas prices and little income growth, fewer resources have been available to manage debt."
As many people struggle to pay for necessities, they skip making debt payments. Many creditors are seeking relief by taking the borrowers to court. But the actions of some financial institutions in carrying out court orders are of questionable legality, according to a new report out by the Social Security Administration's Office of the Inspector General.
The inspector general found that some financial institutions apparently violate federal law by garnisheeing accounts that receive electronic deposits of Old Age, Survivors and Disability Insurance, and/or Supplemental Security Income payments. These funds are supposed to be protected from creditors except under certain conditions.
Nessa Feddis, vice president and senior counsel at the American Bankers Association, said the financial institutions aren't acting heartlessly by taking or freezing funds from people receiving government benefits. Instead, she said, the banks are obeying court orders. Feddis said that in many cases if the banks don't comply, they could havt to pay heavy fines.
The problem is that you have a set of state and federal laws that are conflicting, Feddis said.
"The banks are caught between a rock and hard place," she said. "They have a court order that says they have to take this money."
A financial institution can take protected government benefits only under the following five conditions, according to the Social Security Administration:
The Social Security Administration recommends that if your benefits have been taken from your bank account or a creditor tries to garnishee your Social Security check, inform those involved that unless one of the five conditions apply, your benefits cannot be garnisheed. And, if needed, seek legal assistance.
There may not be a clear villain in this situation but there are definite victims. Banks shouldn't be forced to snatch money from the accounts of people just getting by on government payments.
Creditors have a right to collect what they are owed but it's only humane to leave people with enough money to cover their basic necessities. The powers that be need to fix this problem — and quickly.
