How you can lose Social Security

By Christian Science Monitor

Michele Severin says she has thousands of dollars in credit card debt and no way to pay it. A single mother in Brooklyn, she and her young daughter live on $1,300 a month in government Social Security disability payments -- far less than the $50,000 a year she earned as a New York City bus driver before an injury in 1989 knocked her off the job.

To protect herself from creditors, she considered filing for bankruptcy, but the fees for an attorney were too high for her, and she figured creditors couldn't garnishee Social Security. Assuming the money was safe, she set up direct deposit, which is less expensive, more secure and faster than depositing the money in person. But in March 2005, her bank froze the funds, and Severin, unable to pay rent, found herself in court fighting an eviction.

Severin's case is not unique. As the federal agencies begin another push for recipients to accept their Social Security checks by direct deposit, consumer advocates point to a little-known risk of using the system: Recipients who have judgments against them are vulnerable to losing access to their money.

The problem, advocates say, isn't the direct-deposit system but the failure of banks to implement safeguards to protect accounts with exempt funds from being frozen.

Now some state courts are requiring financial institutions to verify that an account does not contain 100% exempt funds before freezing it, and legal-aid attorneys are bringing lawsuits to force banks to ensure that the money they restrain can legally be garnisheed.

Banks in the middle

Banks say they are caught in the middle of a legal dispute that is not their responsibility to resolve.

For people living on Social Security, losing access to their bank account can be devastating, community advocates say.

"When someone has an account which is exclusively made up of Social Security funds, it's likely these are their only funds," says Margot Saunders, the counsel for the National Consumer Law Center. "When their accounts are frozen, they have no money to pay rent, buy food, transportation or go to the doctor."

Although no hard data exist on the amount of exempt funds frozen by creditors, community advocates say it's a serious issue. "This is an exploding problem," says Saunders, noting that legal task forces in several states are working on the problem.

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In January, the federal government began a yearlong campaign dubbed Countdown to Retirement to encourage new Social Security recipients to choose direct deposit. Cases of lost or stolen checks and fraud are far less common with direct deposit -- and the government saves about 80 cents a payment. Direct deposit is a win-win situation, unless the recipient has bad debts.

Many low-income people find it difficult to navigate the legal system, community advocates say.

"Are we going to burden those who are already vulnerable, or are we going to put the burden on the parties who can better absorb the extra effort . . . the banks and the judgment holders of debt?" asks Gina Calabrese, the associate director of St. John University's Elder Law Clinic.

6 weeks without access

For Severin, losing access to her account was a nightmare. Getting across the city to meet with her lawyer was physically painful, as was going to court to fend off her eviction. It took Severin six weeks to have her funds released, during which she had no access to two months of Social Security payments.

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