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The SSDI 'payment' is exempt but what happens once it hits the bank account?

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  • The SSDI 'payment' is exempt but what happens once it hits the bank account?

    I've read different things, some say once it hits the bank account it is safe, as long as you don't commingle funds (wow, sounds like MF Global!), others say its safe up to a certain amount.

    Would applying for the SS debt card help, since I'm assuming that can't be frozen? I received a lump sum from my SSDI and I assume I would have to liquidate that account, else it is fair game?

    Are the rules the same for judgments as they are for chapter 7?

  • #2
    SSDI is exempt from the source through to the bank account. It cannot be commingled with other funds therefore NOTHING but SS should be deposited into the accout. Right from the horses mouth. . .


    Subsection 407 Assignment of Benefits

    "The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law."



    • #3
      The thing is, I have two bank accounts. One bank account I have had since I started working, since 1997, the other I opened in 2011. The old account has had all sorts of checks deposited in it over the years, but after I received my lump sum in 2010, other than birthday/xmas checks nothing else has been deposited in it. The new account was opened by writing myself a check, from my old account to the new account. My SSDI is direct deposited into my new account. I'm also receiving a rent rebate check from the state of PA direct deposited into my new account. I lived in PA last year. Should I attempt to reroute this check elsewhere?

      I have the original award letter, that shows the total amount I recieved. Is that enough to prove this is just SS money?

      Should I just empty the accounts and start fresh with just direct deposits?


      • #4
        If you were my client my instructions would be as follows:

        1. Go to the bank
        2. Open a new account with the smallest amount possible. Maybe the bank will allow a SS designation and not even require $$ to open it now. Maybe the bank can consider it "open" once the SSDI is wired in. I don't know. The less $$ you directly deposit to open the better.
        3. Contact the SSA and instruct it to deposit all future funds to the new account
        4. Use or close the prior account as you wish
        5. NEVER EVER deposit anything but SS or SSDI into the new account. You can withdraw from it as you wish but NEVER add anything to it other than SS or SSDI.



        • #5
          Ok, thank you for your advice. I am going to open a new account, and I'm going to instruct the bank that it is only SS deposited into this account. I think I've read online that you can write the bank a letter, instructing them that its just SS.

          I'm glad I'm figuring this out now, so I can be prepared when I file bk in the next 18-24 or so months. I'm going to 'spend' the money.


          • #6
            Look into the direct express card. Your money will be safe there.


            • #7
              Since I wont be filling for BK for at least a year, at the most (probably longer). Can I just create a new bank account now for my SS, and then 90 days before a file BK empty my other accounts? I'm just a little leary of having thousands of dollars in my apartment.


              • #8
                Originally posted by sephiroth499 View Post
                Since I wont be filling for BK for at least a year, at the most (probably longer). Can I just create a new bank account now for my SS, and then 90 days before a file BK empty my other accounts? I'm just a little leary of having thousands of dollars in my apartment.
                Practice pointer. . .

                Utilize non SS $ before you touch the SS $ that way you don't have to worry about having $$ in an unprotected account. If you can, save, save, save the SS $ and spend, spend, spend everything else.



                • #9
                  Ok I got you. I didn't think about that type of money management. Will do!.

                  I decided to go with the express card. It says right on the page the law that you previously cited, so I know it's safe. Later I can transfer the money to a bank account if I want for a 1.50 fee. You can even use the express card to buy money orders, or just get cash out.
                  Last edited by sephiroth499; 05-26-2012, 09:09 PM.


                  • #10
                    One other thing, the bank account cannot be an account that earns interest. Once your BK is behind you, you can move it to an interest bearing account.


                    • #11
                      Originally posted by helpmeout View Post
                      One other thing, the bank account cannot be an account that earns interest. Once your BK is behind you, you can move it to an interest bearing account.
                      Not true. While it is true that the proceeds of SS are not exempt (interest is a proceed) the commingling of the same is not an issue as such is easily traceable. The actual interest earned on $$ is so minuscule that no one will garnish it as the cost of garnishing is far in excess of the accumulation of that interest.



                      • #12
                        I figured it out, exactly what the rules are for ss and other federal benefits. It took me weeks of searching. You might want to consider a sticky.

                        The system will not allow me to upload the pdf, nor can I post a link. Search for 'nclc-rpts-repo-jan-feb-2011.pdf' minus the quotes.

                        Here is an exert

                        Advising Clients: How to Make the Most of the New Protections
                        Exempt funds delivered by paper checks are not protected under the new rule, and can only be protected through the applicable state process.29 Beneficiaries who are receiving pa*per checks should consider switching to electronic deposit or to the Direct Express card discussed in the next section.
                        The new rule will not provide full protection for benefit recipients who accumulate more than two months of bene*fits in their accounts, or who are expecting or have not yet spent down a lump-sum payment. These beneficiaries are vulnerable to garnishment of whatever amount exceeds the “protected amount.” For example, if an account contains $5000, but only two $2000 federal benefit payments were de*posited within the last two months, the remaining $1000 is vulnerable. Although already-paid benefits cannot be trans*ferred onto the card, switching to the Direct Express card will protect the full amount of future benefits. In the alter*native, the beneficiary can withdraw cash or spend down the bank account to protect the full amount, or can rely on as*serting the exemption through state court procedures.
                        Beneficiaries should not transfer funds from one account to another, as the protections of the new rule will not follow the transferred funds. For example, if a beneficiary receives a $1500 electronic deposit of federal benefits, and transfers $1000 to a different account, leaving $500 in the first ac*count, only the remaining $500 in the first account is pro*tected by the rule. The $1000 transferred to the second ac*count is vulnerable, although state law may protect this sum if it can be traced to the exempt benefits.
                        If there is any chance that a beneficiary will need to rely on state exemption procedures, the account should include just exempt benefits, not any other amounts, as some courts have denied state exemptions when the exempt funds were commingled with non-exempt funds.30

                        Direct Express Card Is a Watertight Way to Protect Full Amount of Social Security and SSI Benefits
                        The Direct Express card is a MasterCard-branded prepaid (stored value) debit card that receives all federal payments, including Social Security, SSI funds, and VA benefits. The Treasury has entered into a contract with Comerica Bank to automatically disburse Treasury payments onto each card on the payment date.31 The funds are loaded electronically and remotely, so beneficiaries need not go into a financial institu*tion, government office, or check cashing outlet to obtain ac*cess to their benefits each month.
                        not exempt under federal law, such as seizure of benefits to pay child support or alimony. Because Comerica only loads exempt federal benefits onto the Direct Express Card, ex*empt funds are never commingled with non-exempt funds.
                        The Direct Express card can be used to withdraw cash from ATMs, make purchases at stores that accept Master*Card debit cards and get cash back when purchases are made, or make payments over the telephone or the Internet. It can be used to purchase money orders from the U.S. Post Office, but cannot be used to write personal checks. Unlike some bank accounts, there are no high overdraft fees or extortion*ately priced bounce loans. The card carries some fees, but they are relatively modest and recipients can avoid most of them.32 Signing up is easy.33


                        • #13
                          499: There is one in the collections section.


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