Are creditors threatening to take your money or property? A new law makes it more difficult for a “creditor” (a person or company to whom money is owed) to take money or property from a “debtor” (person owing the debt).
What steps must a creditor take to get someone’s money or property?
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The first step is file a lawsuit for a specific amount of money or item of property, as long as the property has not been mortgaged or put up as collateral for a specific debt.
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The creditor must get a judgment against the debtor in court. After getting a judgment, the creditor may try to collect by garnishing the debtor’s wages or bank account.
What funds are exempt?
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In most cases, federal and state law protects money in accounts from sources including federal benefit payments such as:
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Social Security Disability;
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Supplemental Security Income (SSI);
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Veteran’s Administration (VA);
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Federal Railroad retirement, sickness and unemployment benefits; and
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Civil Service and Federal Employee retirement.
What has the process been before May 1, 2011?
Creditors could try to garnish bank accounts containing protected benefits by sending a garnishment order to the bank. The garnishment order is a court order telling the bank to turn over the money to the creditor.
After getting an order to garnish, a bank would often place a temporary freeze on a debtor’s bank account. This would block all access to benefits in the account. To start the process to end the bank’s freeze on the account, a
debtor had to file a written motion to quash with the court. The debtor had to wait for a court hearing to end the bank’s freeze on the account.
What is the process after May 1, 2011?
New U.S. Treasury Department rules change the garnishment process for creditors. The new rules only protect federal benefits that are direct deposited into a bank account. Changes listed below are effective on May 1, 2011.
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When a bank or credit union gets an order to garnish someone’s account, it has two business days to review the debtor’s account; The bank or credit union will need to find the amount of protected federal benefits that were direct deposited into the account during the two previous months; and
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If federal benefits were deposited during the previous two months, the bank or credit union must protect either:
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The total amount of protected benefits deposited over the past two months; or
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The current balance, whichever is less.
How does the debtor find out what’s going on with his or her accounts?
The bank or credit union then has three business days after the account review to send the debtor a written notice. The notice must tell the debtor who gets the order all of the following:
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What money in the debtor’s account is protected and what money is not protected from the garnishment;
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The right to request other exemptions from garnishment under state law; and
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The right to talk to an attorney.
When an account has protected federal benefits, banks and credit unions cannot charge the debtor a garnishment fee unless there are more unprotected funds than protected funds when the account review takes place.
Also, the bank or credit union can only charge a garnishment fee to a person who gets federal benefits if the bank or credit union routinely charges all its customers this type of fee. The fees for people with protected benefits must be the same as fees other customers who do not get these types of benefits pay.
Iowa Legal Aid assists people with debt collection issues, including garnishments. If you cannot afford a lawyer, you may be able to get free legal help. Call Iowa Legal Aid at 1-800-532-1275 (se habla español). Apply for help on the phone Monday thru Friday from 9 to 11 am or from 1:30 to 3:30 pm. If you are age 60 or over, you may be able to get free legal advice from the Legal Hotline for Older Iowans at 1-800-992-8161.
