If a creditor is garnisheeing your Social Security benefits, it may be illegal

The reports just keep coming that consumers are having difficulty paying their debts. One of the latest is from the Consumer Credit Delinquency Bulletin of the American Bankers Association. The bulletin found the percentage of home equity lines of credit more than 30 days past due rose to 1.10 percent during the first quarter. This was the highest rate since 1997. Bank card, auto, and personal loan delinquencies also rose.

As many people struggle to pay for necessities, they skip debt payments. Creditors in turn are taking borrowers to court. But in some cases the actions of the financial institutions in carrying out court orders are of questionable legality, according to a report by the Social Security Administration's inspector general.

The inspector general found that some institutions are violating federal law by garnisheeing accounts that receive electronic deposits of Old Age, Survivors and Disability Insurance, and/or Supplemental Security Income payments. These funds are supposed to be protected from creditors except under certain conditions.

"Millions of beneficiaries rely on Social Security benefits as their only source of income for basic needs such as housing and food," the inspector general's report said.

During a 12-month period, the 12 largest banks took $1 million from accounts that held only government benefits. Another $29 million was taken from accounts that held money from government benefits that was commingled with cash from other sources. The report also found in some cases banks were charging overdraft charges and other fees that occurred as the result of a garnishment.

Although the sample size in this investigation was small, the report concluded that if all financial institutions followed the same pattern, as much as $177.7 million in garnishments could be attributable to beneficiaries receiving direct deposit of Social Security benefits.

Nessa Feddis, senior counsel for the American Bankers Association, said the financial institutions aren't acting heartlessly. Instead, she said, the banks are just obeying court orders. Feddis said in many cases if the banks don't comply, they could be punished with heavy fines.

The problem is that you have state and federal laws that conflict, Feddis said.

A financial institution can take protected benefits only under the following five conditions: to collect child support and/or alimony; to collect unpaid federal taxes as the result of an IRS levy; if the beneficiaries elect to have benefits withheld and paid to the IRS for federal income tax; to pay a federal agency a nontax debt; and to collect overdue federal tax debts by levying up to 15 percent of monthly payments until the debt is paid.

The Social Security Administration recommends that if your benefits have been taken from your bank account or a creditor tries to garnishee your Social Security check, inform those involved that unless one of the five conditions apply, your benefits cannot be garnisheed. And, if needed, seek legal assistance.

Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com.