Banks must now follow a new procedure when they receive a bank garnishment against an account holder who receives certain federal benefit payments by direct deposit.
In the past, a bank would withhold all assets in a debtor’s account when served with a court ordered garnishment. If the homeowner received certain types of benefits such as Social Security Benefits, the account holder could contest the garnishment in court and claim an exemption.
Effective May 1, 2011, financial institutions will now be tasked with reviewing a debtor’s account for federal benefit payments which were deposited into the account 60 days prior to the date of the garnishment (“lookback period”). If funds in the debtor’s account are found to be exempt, the bank will not withhold or freeze the protected funds.
The following are a few important notes regarding the new regulation:
- Bank must review the debtor’s account no later than two business days after receipt of the garnishment order.
- The “lookback” period is 60 days prior to the receipt of a garnishment order.
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