It's always difficult when someone cannot pay back money owed to a creditor. In many cases, creditors will take the extraordinary action of getting a debtor's bank account frozen - making it difficult for the individual to pay for the bare necessities.
This can be particularly devastating for those who rely on government payments -such as retirement benefits, veterans' benefits and Social Security Disability and Supplemental Security Income payments - for their income. In order to assist these consumers, who already live on tight budgets, the U.S. Department of the Treasury recently implemented a policy to protect their government payments.
The rule, which went into effect in May 2011, stops creditors from being able to freeze bank accounts of debtors until it is determined whether the individual has government payments in the account. If the individual does receive government payments, the debtor's bank must leave two months of benefits in the account.
Previously, companies were able to seize these government payments, even though they are legally exempt, because the creditors did not have to investigate where the funds in the bank accounts came from. As a result of this practice, creditors were able to improperly seize exempt funds from about one million people each year.
"Banks have been making loans to people who don't have the ability to repay them," Margot Saunders of the National Consumer Law Center told CNN.com. "Banks have then routinely been ignoring the letter of the law and seizing exempt benefits to turn over to creditors, thinking there's very little the consumer can do about it."
While the Treasury Department's rule will help a lot of people, there are some caveats. Those who owe money to the government, such as for taxes, will not be protected by the policy. In addition, those who save their benefits or receive benefits that have accumulated over time will not be able to hold on to any funds over the two months of benefits that are protected.
