Can a collection agency withdraw bank funds from a recipient of socialsecurity disability?

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Can a collection agency withdraw bank funds from a recipient of socialsecurity disability?

My sister is on SSD. She lives in subsidized housing. MI is now going paperless with payments and has required that she get a debit card at a local bank. Several years ago she co-signed for her son-in-law for a vehicle. He defaulted on the loan and disappeard. She was advised at the time of receiving disability to not have a bank account as the agency may try to collect from her. She is fearful with this being her only source of income that she will be homeless if they now attempt to sieze the outstanding loan.

Asked on September 9, 2011 under Bankruptcy Law, Michigan

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

SSD payments are what is known as "exempt" funds. This means that they cannot be garnished by a creditor. It used to be that a creditor could freeze a bank account in an attempt to get this money. If the debtor did not object within a specified timeframe, then the money would in fact be paid over by their bank even though they were otherwise exempt. 

Fortunately this is no longer the case. If exempt funds are paid into an account via direct deposit, they cannot be frozen (although other non-exempt money can be). So as long as SSD is directly deposited (not deposited by check) a creditor cannot garnish these payments.

Note: Only 2 months worth of benefits are protected. Also, don't transfer benefits to another account or else the protection is void.


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