Creditors have several avenues to try to collect a debt that is past due. If you are working, they can garnish your wages. They can also conduct an asset search to discover property, bank accounts, investments or financial instruments you may own. In addition, they can freeze your bank account and recoup their losses from the money you have in the account. If you are retired, some pensions are exempt, others are not. None is exempt from the federal government.
Exempt Income
Exempt income is income that cannot be garnished by creditors or court judgments issued against you. Most income from the federal government, such as veteran's pensions and benefits, Social Security, Supplemental Security Income and Railroad Retirement benefits, are exempt from garnishment by ordinary creditors or court judgments in accordance with federal law. In addition to exemption from garnishment, if this is the only source of income deposited in your bank account, that money in the account is exempt from garnishment, as is anything you purchase with it.
Exceptions
As with many laws, there are exceptions. If you owe federal debts, such as student loans, or you owe child support, your veteran's pension can be garnished. Under the Debt Collection Improvement Act of 1996, veterans' pensions are subject to administrative wage garnishment for debts owed to the federal government or for child support, if the state in which it is owed notifies the federal government. Up to 15 percent of your pension can be garnished if your income is sufficient.
Notice of Garnishment
If your veteran's pension benefits are to be garnished from a bank account, the bank receives a notice that authorizes the bank to garnish the amount designated from the bank account in which the pension benefits are held. The federal government does not have to go to court to get this garnishment order. The authorization is provided by statute, but proper procedures must be followed. For example, if the garnishment is for child support, there must be a court-certified child support order.
Non-Federal Debt
If you are legally subject to garnishment for non-federal debt and the creditor pursues your bank account, you will receive a notice of the garnishment. If you receive this notice, you must notify your bank that funds in your account represent exempt income. The bank cannot seize your money with the state court order unless it is accompanied by a Notice of Right to Garnish Federal Benefits.
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