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New law to slow wage garnishment of exempt funds

State and federal laws protect consumers from debt collectors who overreach in attempting to collect a debt. Still, many Ohio residents who are facing a large debt load in this tough economy know that not all debt collectors follow the letter of the law. This blog has reported several stories of unscrupulous debt collection practices.

On the flip side, debt collectors have certain tools available that the law provides to collect past due debts. One of those tools is seeking wage garnishment from paychecks and bank accounts after obtaining a judgment on the debt in an Ohio court. Wage garnishment can provide real hardship for someone suffering from high debt. Typically, after a bank receives a garnishment notice from a creditor, the bank account is frozen while the bank gives the account holder the opportunity to specify if any of the funds in the account are exempt from garnishment under the law.

Certain funds cannot be garnished. Among the funds that cannot be garnished are specified government benefits, such as Social Security benefits, Supplemental Security Income, veteran's benefits and certain government or railroad retirement benefits. The difficulty for many people in the past who receive the protected funds comes during the period when the account is frozen. Although funds are in the account, the account holder has not been able to access the funds until they tell the bank the money is exempt.

A new federal law takes effect on May 1, to address the issue. The law requires the bank to review the account before freezing the funds. The law only protects the most vulnerable citizens who rely on the exempt government benefits.

For many other Ohio residents that face wage garnishment, filing for bankruptcy protection may be a viable option. Filing for bankruptcy places an automatic stay on all collection activities. That means bill collectors must stop calling the debtor, stop sending letters to collect debts and halt wage garnishments under bankruptcy law. Other collection processes, such as foreclosures and repossessions are also halted. The collector cannot resume collection activities without express permission from the bankruptcy court.

Source: CreditCards.com, "New rule protects exempted funds from garnishment orders," Martin Merzer 29 Apr 2011

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