Thursday, May 6, 2010

Avoiding Garnishment of Social Security Benefits: Direct Express

As the Dow Jones Industrial Average falls hundreds of points today in a panic over the European sovereign debt crisis, life goes on. Some people have worse problems. One is the garnishment of Social Security benefits.

Garnishment is a legal process for creditors to get a court order requiring your bank to give them the funds in your bank account(s) to repay your debts. Garnishment sounds harsh, but you're obligated to pay your debts, unless they've been discharged in bankruptcy or otherwise resolved. Creditors should have the means to obtain what you lawfully owe.

Social Security benefits are by law exempt from garnishment (except for limited situations such as taxes owed the IRS, child support or alimony). The idea is that beneficiaries should get the money so many need to survive when they're retired or disabled. But banks have frequently failed to protect Social Security benefits from garnishment, often because of the difficulty of separating Social Security funds from other funds in customer accounts (money, after all, is fungible). Some Social Security beneficiaries were able to protect their benefits by cashing their checks and living off the banking grid. But this involved obvious problems with high check cashing fees, the question of how to keep cash safe, more high fees for money orders when cash payments aren't accepted, and so on.

The check cashing way of life is ending. New enrollees for Social Security benefits can no longer get checks in the mail. Their benefits must be paid electronically. Existing beneficiaries will have to go electronic by March 1, 2013. So how can legally exempt funds be protected from garnishment? The Treasury Dept. is issuing regulations that would require banks to analyze accounts and hold back certain amounts from garnishment orders, and so on. But what are the chances the banks won't screw it up? Hint: don't bet your benefits on it.

An alternative would be a debit card called Direct Express. Direct Express is a debit card that is credited with your Social Security benefits each month. It bears the Mastercard logo and is administered by Comerica Bank in Dallas. Direct Express can be used like any debit card. Since acceptance of debit cards is now widespread, it's pretty convenient. You can get cash at ATMs (watch out for fees) or by going to banks that handle Mastercard cash withdrawals. If you need a check, you can use Direct Express to buy money orders at the Post Office, or you can transfer the funds to a bank checking account (although then you might be at risk of garnishment). For more details about Direct Express, go to

Direct Express isn't connected to a traditional bank account. Since Direct Express would only contain Social Security benefits, it shouldn't be subject to garnishment (except in certain limited circumstances permitted by law, such as for taxes owed the IRS, child support or alimony). Of course, you should pay your debts and that would include voluntarily using Social Security benefits for repayment if you can afford it. But if you're not sure you want to rely on a bank to protect your benefits from garnishment, consider Direct Express.

Now, go back to worrying about the European sovereign debt crisis.

No comments: