When bad credit comes back to haunt those who are dependent on monthly government payouts, it often has devastating effects. The retired, elderly, disabled, and veterans are the ones who suffer the most when creditors come knocking, because they rely on their income, which usually consists entirely of benefit payments from government programs, to provide their basic necessities.
Until now, creditors have been aggressively sending orders to banks to freeze the funds of their debtors (this is different from a Title II freeze), regardless of whether accounts contained exempt income, such as government benefits. If the account holder fails to put up a fight in the allotted time, the bank has no reason not to hand over the frozen funds to the creditor. It is obvious that the elderly are not in a position to fight with creditors by going to court, which costs them even more of their precious income, even if they are able to stop the seizure, and places them at a higher risk of becoming homeless and hungry.
Granted, those receiving SSI, Social Security retirement, and veteran’s benefits have just as much responsibility as other citizens to maintain good credit. However, people with set incomes find it difficult to handle any unexpected expenses, even unavoidable ones like medical bills, because of their paycheck-to-paycheck lifestyle.
Starting in May 2011, things will start to change for such citizens, thanks to a new rule enacted by the U.S. Treasury Department. This new regulation will make it harder for creditors to seize funds from accounts that receive direct deposit benefits from the government. When banks receive orders to garnish wages from accounts, they will have to determine whether those accounts contain government benefit payments. If so, according to the new rule, they will be required to protect two months worth of benefits from garnishment, determined to be enough to cover living expenses.
The effort was largely headed by senators and law firms working closely with the U.S. Treasury Department in an effort to help the people of their respective states, many of whom have appealed to them personally for help. The issue was also advocated by the National Consumer Law Center, a non-profit organization that rallies behind the underprivileged and at-risk in society. The NCLC has expressed that it is very proud of the Treasury Department for taking the step.
The new rule enacted by the U.S. Department of the Treasury goes a long way in ensuring the financial stability of the most vulnerable members of our society, including those receiving disability benefits, and sets the groundwork for similar rules to be enforced. It is already set in motion, but is open for comment until the end of the month. With the setting of this precedent, some hope that eventually the protection will be extended to include military benefits as well.
For now, those on set incomes can rest a lot easier, knowing that even if things get tough, they will at least have a roof over their heads and food on the table.