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Automatic exemption for Social Securiy deposited in checking.

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  • Automatic exemption for Social Securiy deposited in checking.

    I have searched the automatic exemption from seizure of social security deposits to personal checking accounts but its still not clear to me how this works. My understanding is that at least in California , Social Security has an automatic exemption and within limits can no be seized by creditors if it was auto deposited. All funds are flagged with and XX appended to the transaction number and as I read it the bank is required to disallow any seizures of said funds. Where it gets muddy to me is that if I read the law correctly the exemption is for $2875.00 and it does not matter if you have other co mingled funds as long as you have your Social security automatically deposited.

    Can anyone confirm or tell me if this is correct or have I missed something. I want to know because my wife is being sued for an old credit card debt but needs to keep her checking account if at all possible but does not want to put more money in the account than is 100% safe from seizure or garnishment. She has not other income other than a small pension and disability benefit that are also as I understand it safe from seizure in California but not necessarily in the same way Social Security is. The suite is in her name only and for now I believe that I am safe but could eventually be as California is a community law state. For now we have separate checking accounts and until or if they do a court ordered asset search they have no way of getting to my accounts because her name or social security number are not on them.

    Any first hand knowledge or experience would be helpful.

  • #2
    the most common problem with these types of situations are: the creditor usually grabs the money first and then you are at the mercy of trying to get the funds back. we were also concerned about this situation prior to the completion of our bk. concerning our bank accounts since they only consisted of "exempted" income. however, a creditor does not, and usually cannot distinguish those funds are protected under any exemption statue, at the time of the pull. we filed bk and then this issue was no longer a threat. however, what we did is, went to another state and had the ss and pensions deposited in that bank account. we used small local banks. i can't swear to this, but it may have helped stall the situation enough to reach our discharge and bk close. although any creditor can track one with your ss number.

    my best advise to you is to think about this. if it's your wife's account, and not yours, providing it's "safe", and i'm not quite certain about that under calif community property laws of calif. although many prenups have provisions about such matters, although i'm thinking this not be your case. why can't you just deposit them into your personal account for the time being, if and only IF that is allowable. if she must keep this account open, can't it be with just a small amount that would not be worth the while of the creditor. and, remember they can grab that account over and over again, once they start. i would also ask the bank, is there something that can be done to safe guard the exempted funds.
    Last edited by tobee43; 12-04-2012, 09:16 AM.
    8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

    Comment


    • #3
      I can't confirm anything about the California law specifically. I wonder how new this law is and if it has been tested, especially on the commingling aspect. Bankruptcy courts generally use a FIFO (First in, First Out) rule when it comes to commingled funds and from a practical matter (not even considering the CA law) it is virtually impossible to say which funds were used when. FIFO works this way...

      SSI deposit. Jan 1, $700
      Pay check deposit, Jan 10, $1,000
      As of Jan 11, there is $1700 in the account, and for the sake of illustration, we will say there have been no outgoing transactions between Jan 1 and Jan 10.
      At least what happens in most states and what bankruptcy courts do will be to have the first $700 of withdrawals be attributed to the first deposit, the SSI.

      Withdrawals:
      Jan 15, $400 car payment
      Jan 16, $145 Groceries.
      Jan 17, $200 utilitiy bill.
      Jan 18, file bankruptcy, or receive garnishment.
      Balance on Jan 18 $955. The bankruptcy courts at least (and most state courts) will say that the $955 in the account is NOT SSI and therefore not subject to the SSI exemption.

      So, best practice, not withstanding the CA law on commingling, is to NOT commingle and set up a specially designated account that ONLY contains SSI. I wouldn't go to the extreme that Tobee did and go to another states (which is a pain in CA). You can get your SSI put on a Debit card and that Debit card is not subject to garnishment.
      Last edited by HHM; 12-04-2012, 10:16 AM.

      Comment


      • #4
        HHM, the only question i would ask, is how the creditor distinguishes or identifies these FIFO deposits are protected under an exemption statue? i mean, when these creditors grab, they grab with pointed sharp claws and blindfolds on.

        also, for us it wasn't really an "extreme" measure and done only for the protection of the funds, it was set up like that because we knew we were leaving the state. you know i like to be extreme anyway, but in this case, it was just for what i was hoping to be a way to divert some attention away from us, while also setting up new accounts in our new home state. i wasn't suggesting OP follow what we did, i was just exchanging our experience with these types of funds and how and what we did to attempt to protect them from creditors. we still have those bank accounts today.

        that being said, your suggestion is sound if there is actually a way to set up this account to be identified as being protected under a exempted statue. i rather prefer your suggestion with respect to the debit card. as you have pointed out, a debit card cannot be garnished.


        "If a creditor other than the federal government tries to garnish your Social Security benefits, inform them that such an action violates Section 207 of the Social Security Act (42 U.S.C. 407).

        Section 207 bars garnishment of your benefits. It can also be used as a defense if your benefits are incorrectly garnished. Our responsibility for protecting benefits against garnishment, assignments and other legal processes usually ends when the beneficiary is paid. However, once paid, benefits continue to be protected under section 207 of Act as long as they are identifiable as Social Security benefits."
        Last edited by tobee43; 12-04-2012, 09:52 AM.
        8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

        Comment


        • #5
          Generally, exemptions are up to the debtor to enforce. You are correct, the garnishing creditor has no idea and the law doesn't place a burden on them to figure it out. However, the law varies as it relates to the bank. Some states, like CA, require banks, if the customer requests, to set up specially designated accounts that would be protected against garnishment. In that sort of situation, the bank has some responsibility. However, I have never heard of these laws extending all the way to any ol'e account.

          So, for example, if the debtor sets up a specially designated account that contains only SSI, then if the bank receives a garnishment, the bank will not freeze that account.

          As for the debit card, the SSI card cannot be garnished, but in general any pre-paid debit card "can" be garnished, it is just impractical and very difficult to do.

          Comment


          • #6
            i do believe the banks, as confusing as this all is that it does vary to their general policies in ca. i have one trust from calif which i had to set up a separate account for the depositing of the settlors ss check while i had, or when using a different major bank in calif, i was able to have it directed solely to the trust account. i was a bit confused as to why one bank did it one way and why another bank in the same state handled the funds differently. being in no position to argue with whatever policy that want to use, i just comply.

            one would like it rather difficult even with the legal sources that most of the creditors have at their fingertips, trying to garnish a debit card issued from the Federal Government would be a taunting task.
            8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

            Comment


            • #7
              Here is a link to what I am referring to. http://www.google.com/url?sa=t&rct=j...ulB2Yw&cad=rja

              This is just one example of the New Rules regarding Social Security and other exempt funds. It is an old article and I will search for more recent ones. I have asked my bank about it and they did confirm it is true and even showed me the xx flags on the transaction numbers on our online statements. This account only gets 3 deposits per month. One for Social Security, One for my wife's pension both which are automatically deposited and one manual deposit from a disability insurance payment. The total is less then $2000.00 per month. We pay only regular household and personal bills out of this account. From my reading it appears that according to the new Law the way it works is that there is an automatic exemption of first $2875.00 on any account the has Social security payments auto deposited and the bank has the responsibility to flag the account as such with no intervention by the depositor. At least this is how I have read and understand it.
              As per my original post I am hoping to get some confirmation from some one who has personal knowledge or experience with this in the past year since it is a new law.
              We intend to not take anything for granted and are prepared to make sure that we do not put any unprotected funds in this account. Where I am most concerned is in the way exempted funds are determined and the total or maximum amount that we can have on deposit at anytime. Worst case as I understand things is that even if a levy was attempted we would be able to get them back since I am 90% sure all of the deposited funds are exempt by law.

              Comment


              • #8
                I'm concerned about these issues, too. My phone calls to nearby banks (I'm in California) has convinced me that they know nothing about these procedures. Or maybe their phone reps are totally uninformed. One told me that their finance person said the levied funds will get frozen and the depositor has to get it unfrozen, however, it goes faster if the deposits are from Social Security. Another said she was sure their legal department would follow whatever rules exist.

                The only bank familiar with the procedure was Comerica Bank, which is the bank that issues my Direct Express card that gets my SS deposits. So I could open a checking account with them and get my benefits directly deposited, and they would know not to freeze the funds for some creditor. Then I could also write checks based on the account. HOWEVER, their nearest branch is downtown, and I'd prefer to have a neighborhood bank. There are so many neighborhood banks within walking distance, that it's a shame none of them know what I'm talking about.

                Maybe I need to call more banks. So far, the banks and credit unions I've called are in the dark about protecting SS funds.

                Comment


                • #9
                  Originally posted by rta View Post
                  I'm concerned about these issues, too. My phone calls to nearby banks (I'm in California) has convinced me that they know nothing about these procedures. Or maybe their phone reps are totally uninformed. One told me that their finance person said the levied funds will get frozen and the depositor has to get it unfrozen, however, it goes faster if the deposits are from Social Security. Another said she was sure their legal department would follow whatever rules exist.

                  The only bank familiar with the procedure was Comerica Bank, which is the bank that issues my Direct Express card that gets my SS deposits. So I could open a checking account with them and get my benefits directly deposited, and they would know not to freeze the funds for some creditor. Then I could also write checks based on the account. HOWEVER, their nearest branch is downtown, and I'd prefer to have a neighborhood bank. There are so many neighborhood banks within walking distance, that it's a shame none of them know what I'm talking about.

                  Maybe I need to call more banks. So far, the banks and credit unions I've called are in the dark about protecting SS funds.
                  i deal with comerica in calif., and their rules are completely different and vary from those of boa and wells fargo, that's all i can tell you. none of them follow one policy it appears. i just had to call them today as a matter of fact and what a mess. i can tell you this, they do NOT know what they are doing. this matter was with respect to an account that solely has ss deposits going into it and i can say, they even filled out their own forms incorrectly. scary.
                  8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                  Comment


                  • #10
                    So this is a Comerica bank account in California and this bank might not be handling your SS deposits correctly? That's frightening! They're the ones issuing the Direct Express card for social security benefits.

                    At any rate, the people I've called do know the situation and have stated that they would not allow a bank levy on social security direct deposits. Is this bank you're dealing with unaware of these issues?

                    Comment


                    • #11
                      Originally posted by rta View Post
                      So this is a Comerica bank account in California and this bank might not be handling your SS deposits correctly? That's frightening! They're the ones issuing the Direct Express card for social security benefits.

                      At any rate, the people I've called do know the situation and have stated that they would not allow a bank levy on social security direct deposits. Is this bank you're dealing with unaware of these issues?
                      no, this is not my account, (without making any direct disclosures), let's just say it is a clients account from a trust and it's just amazing to me that; and this is just an example of what they did; they forwarded documents marking the trust as irrevocable while in fact this is a revocable trust. representing the trust, comerica MADE me open this account specifically and insisting their policy is that ss funds cannot be deposited into the actual "trust" bank accounts. i have worked with major banks that allow ss funds to be deposited directly into a trust checking and or saving account. my point is, it is not their place to decide or determine which part of a trust, if any, or if a trust, is irrevocable and this in this case could cause problems for the clients beneficiaries, if this estate were to go into probate. they have a copy of all pertinent documents how about looking at them? while i just said a mouthful that most likely doesn't make much sense to many, all i can say simply is this.

                      they made a BIG boo boo! LOL!
                      Last edited by tobee43; 12-05-2012, 08:57 AM.
                      8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                      Comment


                      • #12
                        Originally posted by WanabeFree View Post
                        Here is a link to what I am referring to. http://www.google.com/url?sa=t&rct=j...ulB2Yw&cad=rja

                        This is just one example of the New Rules regarding Social Security and other exempt funds. It is an old article and I will search for more recent ones. I have asked my bank about it and they did confirm it is true and even showed me the xx flags on the transaction numbers on our online statements. This account only gets 3 deposits per month. One for Social Security, One for my wife's pension both which are automatically deposited and one manual deposit from a disability insurance payment. The total is less then $2000.00 per month. We pay only regular household and personal bills out of this account. From my reading it appears that according to the new Law the way it works is that there is an automatic exemption of first $2875.00 on any account the has Social security payments auto deposited and the bank has the responsibility to flag the account as such with no intervention by the depositor. At least this is how I have read and understand it.
                        As per my original post I am hoping to get some confirmation from some one who has personal knowledge or experience with this in the past year since it is a new law.
                        We intend to not take anything for granted and are prepared to make sure that we do not put any unprotected funds in this account. Where I am most concerned is in the way exempted funds are determined and the total or maximum amount that we can have on deposit at anytime. Worst case as I understand things is that even if a levy was attempted we would be able to get them back since I am 90% sure all of the deposited funds are exempt by law.
                        That is what I thought you were referring too...that regulation is nationwide, not just CA. So, when you said it was a CA law, that through me a bit on trying to explain. So, what I said is basically how it works in practice.

                        The bigger picture is, instead of worrying about how to avoid a garnishment, how about dealing with the problem and eliminate the risk, get rid of the debt with BK.

                        Comment


                        • #13
                          Wow, the system is more complicated than we imagined. Even filing BK is not that simple. For instance, my medical bills are supposedly being handled by my county public health plan. However, when I had big surgery last year, they did send me a bill for over $67K, stating that if nobody springs for it then I'm ultimately responsible. It's better for me to wait out these medical bills, rather than file now and then not be able to use BK later.

                          In the meantime, it's better to know that SS benefits are really going to be protected. And yet the banks don't seem to be aware of this, or at least their intake people are not aware.

                          Comment


                          • #14
                            Originally posted by tobee43 View Post
                            no, this is not my account, (without making any direct disclosures), let's just say it is a clients account from a trust and it's just amazing to me that; and this is just an example of what they did; they forwarded documents marking the trust as irrevocable while in fact this is a revocable trust. representing the trust, comerica MADE me open this account specifically and insisting their policy is that ss funds cannot be deposited into the actual "trust" bank accounts. i have worked with major banks that allow ss funds to be deposited directly into a trust checking and or saving account. my point is, it is not their place to decide or determine which part of a trust, if any, or if a trust, is irrevocable and this in this case could cause problems for the clients beneficiaries, if this estate were to go into probate. they have a copy of all pertinent documents how about looking at them? while i just said a mouthful that most likely doesn't make much sense to many, all i can say simply is this.

                            they made a BIG boo boo! LOL!
                            You are correct that it is not the bank's job to determine whether a trust is irrevocable. The bank can't make the trust irrevocable, but their records may show that it is. They should get that kind of info from the trustee. When the account was opened, the trustee probably signed a trustee's certificate of trust on the bank's form instead of supplying his own certificate. Either the trustee checked a box saying the trust is irrevocable or the bank officer filled the form out for the trustee and the trustee did not correct it before signing. Just like debtors should read their BK petitions before signing them, a trustee should look at all forms that they sign and make sure the info is correct.

                            It makes sense that SS deposits would not be made to an irrevocable trust. But, as you have experienced, they are deposited to revocable trust accounts all of the time.

                            This is way off topic, so let's not discuss it further here. Tobee, it sounds like you probably have the whole situation under control. But, if you have any questions about dealing with California trusts and banks, now or in the future, post them here: http://www.bkforum.com/forumdisplay....s-Wills-Trusts. I will try to help (If I don't respond, send me a PM to let me know you posted a trust question in case I miss it).
                            LadyInTheRed is in the black!
                            Filed Chap 13 April 2010. Discharged May 2015.
                            $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                            Comment


                            • #15
                              Originally posted by rta View Post
                              Wow, the system is more complicated than we imagined. Even filing BK is not that simple. For instance, my medical bills are supposedly being handled by my county public health plan. However, when I had big surgery last year, they did send me a bill for over $67K, stating that if nobody springs for it then I'm ultimately responsible. It's better for me to wait out these medical bills, rather than file now and then not be able to use BK later.
                              If you are responsible to pay, you have already incurred the debt. You can list it as a contingent debt on your petition and notice the hospital (or doctor, or whoever sent the bill). It will be discharged even if at the time of filing you don't know for sure whether you will be responsible to pay the debt. If, however, you think you will be incurring additional medical expenses, you should wait to file until your care is complete.


                              Originally posted by rta View Post
                              In the meantime, it's better to know that SS benefits are really going to be protected. And yet the banks don't seem to be aware of this, or at least their intake people are not aware.
                              I suggest you either go to a branch and talk to somebody or call and ask to speak to a branch manager. The people who answer the phone are probably the least knowledgable about this kind of issue.
                              LadyInTheRed is in the black!
                              Filed Chap 13 April 2010. Discharged May 2015.
                              $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                              Comment

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