Although it's illegal for creditors to garnish Social Security benefits, more and more seniors today are being guilted by debt collectors to tap their fixed assets for often old or written-off credit card, store and other accounts, senior advocates say. Meanwhile banks, in response to court ordered judgments, continue to freeze accounts containing exempted funds — a hardship some believe will be exacerbated with the looming mandate of paperless Social Security benefits. "Creditors and debt collectors are more aggressive today than ever,” said Richard Goralewicz, an attorney with the senior division of Legal Aid Services of Oklahoma Inc. "And a lot of older people, whose generation feels it's important to pay their bills, unnecessarily will forgo prescriptions and groceries or let their rent lapse to make payments.” Goralewicz cautions seniors never to pay a debt before basic needs because of debt collection calls or threats to sue. "Federal and state law provide certain safety nets so those who become unable to pay their debts, don't unduly suffer,” he said. In Oklahoma, a creditor with a court order to collect cannot touch most pensions or take consumers' homes unless they don't pay their mortgages, Goralewicz said. The protections, he said, date to statehood when the homestead, one gun, 20 chickens, a milked cow and other property were exempted. "The idea was to leave a minimum subsistence so a family could survive and stay off the state welfare rolls,” he said.
Laws not followedStill, many seniors are unaware of the exemptions, Goralewicz said, and the burden is on them to raise the issue. Consequently, banks, when presented with creditors' garnishment orders, automatically may freeze accounts bearing Social Security benefits, and by the time seniors file exemptions at the county courthouse and their cases are heard, it can be five to 10 days before they have access to essential funds. According to a 2008 study by the U.S. Inspector General, illegal garnishments occur at about 70 percent of banks nationwide and account for an estimated $178 million each year. Larry Jones, public affairs specialist with the Social Security Administration in Oklahoma City, has seen it happen in his own family. His mother-in-law's account was frozen by creditors of her daughter, who was a co-signer on the account. Among Social Security beneficiaries, two-thirds count on their monthly benefit, which nationwide averages a little over $1,000 a month, for more than half of their income, Jones said. One-third — including Jones' mother-in-law — look to it for 90 percent or more. Beginning soon, beneficiaries will be required to accept payments only by direct deposit, a mandate some believe will worsen unlawful garnishments. New enrollees must switch to electronic deposits March 1 and existing recipients, two years later. It costs the administration 97 cents to send checks, compared with 7 cents for electronic deposits. The savings will amount to more than $100 million a year, Jones said. Some 20 percent of the current 52 million beneficiaries nationwide — 650,000 in Oklahoma — still receive checks, he said. About 1 million without bank accounts use a debit card the administration introduced in 2008. Banks often are caught in the middle when a consumer's account containing federal benefit payments is garnished, said the American Bankers Association in response to the inspector general study. "On the one hand, a creditor having received a court order entitling it to payment expects a bank to comply with that order or risk incurring liability for the full amount of the judgment,” its statement read. "On the other hand, a debtor (who) receives benefit payments that are exempt from garnishment expects the bank to refuse to pay the creditor funds that are protected.” When funds from more than one source are combined in one account, it is impossible for a bank to know what funds deposited in the account are exempt from being garnished and what should be paid to the creditor, the association said. Elaine Dodd, vice president of fraud training for the Oklahoma Bankers Association, said she's excited about Social Security's direct deposit mandate. "Even with a paper check, there still can be co-mingling of funds,” Dodd said. "But with direct deposit, there's less chance of your check being stolen from your mailbox or taken from your home.” AARP will be monitoring the implementation process so that the administration understands the concerns of older Americans, Oklahoma Associate State Director Sean Voskuhl said. "We know that some of our members simply prefer to get a hard copy of their check, whether due to their access to a bank or just because of their personal history,” Voskuhl said. "And debit card holders should be aware of what fees are going to be charged and how to avoid them,” he said. Meanwhile, a proposed federal regulation is being considered that would place more responsibilities on banks to determine whether any federal benefit payments were deposited within the prior 60 days, not freeze accounts so quickly or garnish entire accounts. The regulation may take effect as soon as year's end, Goralewicz said. The public comment period closed June 18. Until and after then, the best thing a consumer can do is place protected income in a separate account and not mix it with unprotected income, said Catheryn Koss, director of the Senior Law Resource Center in Oklahoma City. For example, if a retiree receives $1,000 a month in Social Security and $500 in rental income, the Social Security income should be in a different account than the rental income, she said. "This will make it easier for the consumer to assert that no garnishment of the account containing protected income is allowed,” Koss said. "It also will assist the bank in helping the customer assert this right.”