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Two Common Mistakes That Put Your Social Security at Risk

Under both federal and Colorado law, Social Security is exempt, or safe, from the vast majority of your creditors. For example, if you are sued by a credit card company and they get a judgment against you, they can’t garnish the Social Security directly from the U.S. Department of the Treasury. However, once those funds make it into your bank account, two common mistakes put them at risk of being frozen, requiring a fight to get them back, or taken outright.

Mistake #1: Commingling

For the purpose of protecting Social Security funds, commingling mean mixing Social Security with any other money such as wages, unemployment benefits, someone else’s Social Security, gifts, etc. When you mix your Social Security with other funds, it can be argued that the Social Security loses its exempt status and becomes fair game for your creditors.  This argument may be overcome in some circumstances, but why create the risk when avoiding the fight is so easy?

What’s the Solution? Open a brand new account at a bank to which you don’t owe any money (for example, don’t open a Chase bank account if you owe Chase money for a credit card, overdraft line of credit, etc.), and make sure that the only money that ever goes into that account is from Social Security. You can pay bills out of the account and withdraw cash like normal (just don’t redeposit it).

Mistake #2: Not Having Your Social Security Directly Deposited Into Your Bank Account

The bank levy process in Colorado is a little bit backwards. A creditor with a judgment against you sends a document called a Writ of Garnishment With Notice of Exemption And Pending Levy to your bank, which immediately freezes all the money in your bank accounts, no questions asked. Then the creditor needs to serve you with the same paperwork. If you don’t file a form called the Claim of Exemption to Writ of Garnishment within 10 days, the bank will release the frozen funds to the creditor. If you do file the Claim of Exemption on time, the court will set a hearing at which you can try to prove that the money in your account is completely or partially exempt and argue that it should be released to you. This is a lot of work and it leaves you without access to your money for weeks while you wait for the process to run its course. See this article for more information about the bank levy process in Colorado and what to do if your account has been frozen.

What’s the Solution? Have your Social Security directly deposited by Treasury into the brand new bank account mentioned above. In 2013, the U.S. Treasury and several other federal agencies amended a rule which now requires banks to protect up to two months of Social Security and other types of deposits (Supplemental Security Income, Veterans Affairs benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement System benefits, and Federal Employee Retirement System benefits) from levies. So when your bank receives the Writ of Garnishment, it has to look at your account before freezing it. And if it sees that the money in the account is exclusively direct deposited Social Security, it won’t honor the levy.

While these solutions help with the symptoms of debt, they don’t solve the underlying problem; you still owe more than you can afford to pay. Even if most of your creditors can’t touch your Social Security, they’ll come after you in different ways including wage garnishments; liens on your property; constant phone calls, letters, and lawsuits; and negative credit reporting which will make it very difficult if not impossible to get a good credit card, rent an apartment, finance a car, or buy a home. To set up a free consultation and discuss methods for resolving the your debt including settlement, repayment plans, and bankruptcy, call The Law Office of Clark Daniel Dray at (303) 900-8598.




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