PROTECTING YOUR FEDERAL BENEFITS FROM CREDITORS
by LEGAL AID OF NEBRASKA
DISCLAIMER: Use of this informational Handout is not intended to and does not create an attorney-client relationship between you and Legal Aid of Nebraska’s attorneys. The information provided to you through this Handout is intended for educational purposes only. Nothing in this Handout should be considered legal advice or as a substitute for legal advice. Please understand that the information contained in this Handout is based upon generally applicable law. Some laws and procedures may vary. If you want legal advice about your specific issue you must consult an attorney.
Protecting Your Federal Benefits from Creditors
Has a creditor filed a lawsuit against you in court to collect a debt? Did the creditor win a judgment against you? That creditor can now use different ways to try and collect on that judgment through the court.
If your judgment creditor knows where you bank, the creditor may try to garnish the money in your bank account. Garnishment is the legal way that a creditor tries to get your bank to turn over the money in your bank account.
Most federal benefits are “exempt” from judgment creditors. This means the federal benefits can not be taken by a creditor to pay a judgment. But what if you put these federal benefits in a bank account? A federal bank rule says judgment creditors can not garnish federal benefits in a bank account. These judgment creditors can not freeze all the money in your bank account and make you go to court to protect your federal benefits.
What federal benefits are protected in a bank account?
- Social Security Retirement
- Social Security Disability Income
- Veteran’s Benefits
- Federal Railroad Retirement
- Federal Railroad Unemployment and Sickness
- Federal Civil Service Retirement System
- Federal Employee Retirement System
How do I make sure my federal benefits are protected from judgment creditors?
Have your federal benefits direct deposited into a bank account.
How does the bank rule work to protect my federal benefits?
Let’s say a judgment creditor wants to garnish the money in your bank account. The creditor will send your bank a garnishment notice. The bank will add up the federal benefits direct deposited to your bank account in the last two months. We call this the protected amount. Always keep the account balance below your protected amount!
Here is an example of how the bank rule works:
You get $800 in Social Security direct deposited in a bank account every month. That means your protected amount in that bank account is $1,600. Keep no more than $1,600 in that bank account and no money in that account can be taken by the creditor’s bank garnishment. And, the bank can not charge you a garnishment fee.
What if my bank account has other money in it besides federal benefits?
You can deposit other money into the account where you have your federal benefits direct deposited. For example, you can deposit wages from a part-time job. All of the money in that account is protected if the account balance stays below the protected amount.
What if the balance in my bank account is more than my protected amount?
The bank will freeze the part of your bank balance that is over your protected amount. You will still have access to the money in your bank account that is below your protected amount. Remember, your protected amount is the total of all of the federal benefits direct deposited to your bank account in the last two months.
Talk to an attorney right away, or call Legal Aid of Nebraska, if any money in your bank account is frozen by the bank.
Here is an example of when money in a bank account could be taken by the creditor:
Let’s say your protected amount is $1,600 because you get $800 in Social Security direct deposited to your account every month. Your bank gets a notice of garnishment. Your bank balance is at $1,800. Your bank will garnish, or freeze, $200 in your bank account. You can still use the other $1,600 in your account.
If the $200 comes only from your Social Security, you can protect it by going to court.
If the $200 comes from another source, like wages, you may still be able to protect it by going to court.
How can I protect money in my account that is frozen by the bank?
Talk to an attorney right away, or call Legal Aid of Nebraska, if any money in your account is frozen by the bank.
You must go to court and show the judge that the money that was frozen in your account is “exempt” and cannot be taken by the creditor. You must act fast. Nebraska law gives you only three (3) business days to ask for a hearing after you receive legal notice that money in your bank account was frozen.
If the frozen money came only from your federal benefits, the judge will protect that money because federal law says your federal benefits can not be taken by the creditor.
You may also be able to protect frozen money in your account that comes from another source, like wages. Nebraska law gives you an exemption of $2,500 for personal property. You can use that law to protect money in a bank account. You file a form in court called a Claim of Exemption. The Claim of Exemption form helps you prove that the money in your bank account cannot be taken by the creditor. To claim this exemption you must file a list of all of your personal property in court.
I have other bank accounts that do not get direct deposits of federal benefits. Should I close them?
The bank rule only protects money in a bank account where federal benefits are direct deposited. The rule will not protect the benefits after they are transferred out of the account where they were deposited.
You may be able to protect money in other accounts by going to court. You can try to use the Nebraska law that gives you an exemption of $2,500 for personal property. Talk to an attorney right away, or call Legal Aid of Nebraska, if any bank account is garnished or frozen.
Will I know if a creditor tries to garnish my bank account?
The bank must send you a notice if you had any money in the account where your federal benefits are direct deposited. The notice will tell you what has happened to your account. Talk to an attorney right away, or call Legal Aid of Nebraska, if the notice says that money has been frozen or taken.
Nebraska law also says the creditor must send you notice of the garnishment by certified mail.
Do I have to use a bank account for my federal benefits?
You may be able to get the federal benefits on a Direct Express debit card. Call 1-888-544-6347 for more information. You can use the debit card to make purchases, pay bills or get cash. A debit card isn’t available for every kind of government benefit. But, benefits on a Direct Express debit card can not be taken by judgment creditors.
Nebraska DHHS Low Income Home Energy Assistance Program (LIHEAP)
Community Action Partnership of Lancaster and Saunders County
United Way of the Midlands 2-1-1
Nebraska Workers’ Compensation Court
Stateside Legal | Legal Help for Military Members, Vets, and Families
National Resource Center on LGBT Aging
Social Security Publications
National Consumer Law Center Factsheet: When Social Security Benefits Are Taken to Pay Back Money to the Federal GovernmentLifeline Program (discounted landline or wireless telephone for low-income households)
National Immigration Law Center
Nebraska Department of Health and Human Services (Main website)
Nebraska Dept. of Health and Human Svcs Online Application for Benefits (ACCESSNebraska)