Federal Rule Protecting Exempt Funds from Garnishment: Updates Since 2011
This blog discusses a federal rule that aimed to provide stronger protections for consumers with "exempt funds" in their bank accounts in case of garnishment. While the rule did go into effect as planned, there have been some updates and clarifications since then. Here's an overview of the current situation:
- The rule, known as the "Regulation E" amendment, is still in effect and applies to all federally chartered banks and credit unions.
- The types of funds considered exempt from garnishment remain largely the same, including Social Security, Supplemental Security Income (SSI), Veteran's Administration (VA) benefits, and various federal retirement benefits.
- The automatic protection of exempt funds deposited within the last two months continues to apply, and the consumer is not required to take any affirmative action to assert an exemption.
- In 2011, the U.S. Department of the Treasury, Social Security Administration, VA, Railroad Retirement Board, and Office of Personnel Management issued a joint guidance to clarify that the two-month lookback period applies to each benefit payment separately.
- Some states have enacted additional laws to protect certain state benefits from garnishment, but this varies by jurisdiction.
- Military retirement and other military benefits are still not automatically protected under the federal rule, but some states have enacted laws to protect these funds.
- The requirement that exempt funds must be deposited into the consumer's account electronically to receive automatic protection remains in place.
While the core elements of the 2011 rule remain in effect, it's essential to consult with a local attorney or financial expert to understand any state-specific laws or updates that may provide additional protections or impact the application of the federal rule in your jurisdiction. If you need help, complete this intake form.
Comparison of Federal Law and New York State Law
While the federal rule (Regulation E amendment) provides a baseline of protection for exempt funds in bank accounts, New York State has enacted additional laws that offer further protections for consumers facing garnishment.
Federal Law:
- Protects certain federal benefits (e.g., Social Security, SSI, VA benefits) from garnishment when electronically deposited within the last two months.
- Applies to all federally chartered banks and credit unions.
- Does not automatically protect military retirement or other military benefits.
New York State Law (Exempt Income Protection Act, or EIPA):
- Protects a wider range of funds, including federal benefits, state benefits (e.g., unemployment insurance, workers' compensation), and certain private benefits (e.g., disability, retirement).
- Applies to all banks and financial institutions operating in New York State.
- Automatically protects up to $3,600 in a consumer's account from garnishment, regardless of the source of funds (as of 2022).
- CPLR § 5222(i)(1): "An execution shall not apply to an amount equal to or less than the greater of two hundred forty times the federal minimum hourly wage [...] or two hundred forty times the state minimum hourly wage [...] except such part thereof as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his or her dependents."
- The $3,600 figure is based on the current New York State minimum wage of $15.00 per hour (as of 2022) multiplied by 240.
- If the account contains exempt funds (e.g., federal or state benefits), the consumer can claim an exemption for an additional $4,800, up to $8,400 in protected funds (as of 2022).
- CPLR § 5222(i)(2): "An execution shall not apply to an amount equal to or less than the greater of four hundred eighty times the federal minimum hourly wage [...] or four hundred eighty times the state minimum hourly wage [...] except such part thereof as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his or her dependents."
- The $4,800 figure is based on the current New York State minimum wage of $15.00 per hour (as of 2022) multiplied by 480, minus the $3,600 automatically protected under CPLR § 5222(i)(1).
- Requires banks to provide specific notices and forms to consumers facing garnishment, informing them of their rights and the exemption process.
In summary, while the federal rule provides a foundation for protecting certain exempt funds from garnishment, New York State's EIPA offers more comprehensive protections, covering a broader range of funds and establishing a higher automatic protection threshold. However, it's important to note that to benefit from the additional protections under EIPA, consumers must follow the prescribed procedures and timelines for claiming exemptions.
Blog from 2011:
A new federal rule[1] will go into effect on May 1, 2011 and will provide stronger protections for consumers with “exempt funds” in their bank accounts in the event their bank account gets garnished. Under current law, when a creditor files suit against an alleged debtor, and obtains a judgment and the right to garnish, restrain or freeze the consumer’s bank account, the consumer must wait until the parties, the bank and the court sort out the question whether funds are exempt from garnishment. All the while, the consumer is without access to her bank account. The new law is designed to end such scenarios by going into effect immediately upon the bank's receipt of a garnishment order.
The second critical change the rule makes is that, unlike under current law, the consumer need not take any affirmative step to assert an exemption. Under the new law, the onus is on the consumer’s bank to ensure that exempt funds deposited within the last two months are protected.
Some important points
The new rule applies to all federally chartered federal and state banks and credit unions.
Funds considered exempt from garnishment are: Social Security, Supplemental Security Income (“SSI”), Veteran’s Administration (“VA”) benefits, federal Railroad Retirement, federal Railroad Unemployment and Sickness benefits, federal Civil Service Retirement benefits and federal Employee Retirement System benefits.
The new rules protect exempt funds even if they are co-mingled in an account with other, non-exempt funds, or held in a joint account.
Funds currently not considered exempt from garnishment are military retirement or other military benefits, but this may change in the future. The new rule also does not protect state benefits.
There is no cap on the amount that can be protected, but the automatic protection of the rule is lost after two months.
In order to get the benefit of the automatic implementation of the new rule (that is, that the consumer need do nothing to protect her exempt funds), the exempt funds must be deposited into the consumer’s account electronically.
If you need help, complete this intake form.
[1] 76 Fed. Reg. 9939 (Feb. 23, 2011) to be codified at 31 C.F.R. §§ 212.1 through 212.12.