Sunday, December 6, 2009

Can debt collectors garnish Social Security?

Typically, no, but take steps to protect those funds anyway

By Sally Herigstad

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

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Question for the expert

Dear To Her Credit,
I got a call from a credit card debt collector today who said he could get a garnishment on my Social Security benefits. He says he can take 25 percent of my monthly check. I can barely get by on my benefits as it is. They are my only source of income.

What can I do? -- Margaret

Answer for the expert

Dear Margaret,
He can't take your Social Security check or any part of it. Nor can he keep calling you and ruining your day -- if you know your rights.

Social Security benefits are generally exempt from garnishment, except in cases of unpaid taxes and child support. This debt collector is hoping you don't know that and that you will fork over the money.

There is another way he could get your benefits, however. If a creditor goes to court and gets a court order to have the bank freeze your checking account, the effect will be much the same as garnishment. If your Social Security checks are deposited directly into your account and the bank freezes your account, you won't be able to pay your bills. Plus, it could take weeks or even months to get it all straightened out.

Some states have recognized this problem and have tried to pass laws prohibiting banks from freezing accounts that contain exempt funds, such as Social Security benefits. In other states, banks have more discretion in deciding how much effort to make in determining if most or all of your money is from exempt sources.

For example, Jay Spruill, general counsel of the Virginia Bankers Association, says, "In Virginia, you would be able to claim the Social Security benefits as exempt property through the court. The garnishment form that is served on the bank and the customer, advises the customer how to go about claiming the exemption, so the customer does have the ability to get the funds 'unfrozen' or returned if they have already been delivered to the court."

Banks would rather not have to decide which of your funds are exempt; in fact, they have resisted being put in the position of having to make that decision. Spruill says, "The problem for a bank that tries to make this determination is that a bank account may contain both exempt and nonexempt funds. As a practical matter, the bank would have to do research to determine the source of the funds, which would create significant challenges. For example, how far would the bank have to look back to determine whether the account had any nonexempt funds?"

"That is why the court should make the determination as to whether funds in an account are exempt," Spruill says.

Here's what you can do:

  • Check with your bank and ask them about their policies. If it seems embarrassing to go to your local bank and ask about garnishment policies, call by phone or go to another branch. You can also seek free or low-cost legal advice about the laws in your state and how you can avoid having your account frozen.
  • If you're worried about your account being frozen and you get your benefits by direct deposit, consider going back to paper checks. Call (800) 772-1213 or go to the Social Security Online Services. Then, if your account is ever frozen, at least you will be able to cash the next check that comes, instead of having it land in a frozen account.
  • The next time this collector calls, tell him not to contact you by phone anymore. Ask him for an address where you can write to him. Then download a cease-and-desist sample letter, fill in the blanks and send by certified mail.
  • Look for long-term solutions to your financial problems. If you need outside help, contact the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.

A word of caution: Do not call shady debt elimination operations or other companies that do not adhere to professional standards. These companies can leave you in worse shape than before.

If you wait until your account is frozen, you'll have to go to greater lengths to undo bank fees and to get your benefits back. Take steps to protect your benefits now.

Sending money to friends, family abroad? Options abound

From traditional agents to high-tech Web sites, you've got more choices than ever

By Karen Kroll

Sending money to friends, family: Technology, society causing changes Say you'd like to get a few bucks to your college-age son who's studying abroad, or you need to send money to relatives on another continent. You have a growing number of options -- ranging from the old-school to the high-tech -- for doing just that.

Prefer the personal touch? You can work with an agent to handle the transaction. Just want it done now? Transfer the money using your computer. Soon, a few up-and-coming services will even let recipients of money transfers get funds via their mobile phones. In all, the worldwide market for remittances -- a formal name for payments from individuals in one part of the world to those in other parts -- hit $443 billion in 2008, the World Bank estimates, and no one sends out more than the United States.

Remittances are big, big business
An estimated $47 billion in remittances were sent from America in 2008, according to the World Bank, more than twice that of any other nation except Russia ($26 billion). More than half of those American remittances ($25 billion) went to Mexico alone -- often from an expatriate family member who is sending much-needed money to his struggling family back home -- but people in virtually every corner of the world have received some sort of remittance payment from the United States.

The global economic recession is taking its toll on remittances, however. The World Bank currently projects that total worldwide remittances received will reach $420 billion in 2009, a $23 billion drop from the previous year. But even with the decrease, there remains a tremendous amount of demand for remittance services.

There's also a wide -- and ever-expanding -- variety of options available for making the payments, so you can choose the way that suits you best.

Keeping it personal
Each way of transferring money has its pros and cons, but for many, the old way -- a face-to-face meeting with an agent -- is still the best. For example, if you want to fund the transfer with cash, rather than a credit or debit card or bank account, it's probably your only choice. But perhaps the most common reason for conducting the transaction this way is also the simplest: Many people simply like to work with a human when they're moving money to faraway places, says Saul Wolf, remittances manager with the World Council of Credit Unions.

Comparing costs of
wiring $200 to Mexico
Type Cost
Using an agent Ranges from $7.99 to $14.99
Using a computer Ranges from $4.99 to $12. Additional charges (up to $25) may apply for the initial transaction.
Using a cell phone Not yet available in the U.S.

"It can be daunting to send money overseas," Wolf says. "You want a person in front of you, who you can come back to if there's a problem."

It can also be comforting to know that the person to whom you're sending the money will have to deal with a real person as well -- to guarantee that the person who is supposed to get it actually does. Both MoneyGram and Western Union, giants in the money-transfer business, have taken steps to help ensure that. For instance, both firms generate a distinct number for each transaction that the sender passes to the recipient. Also, in many countries, the recipient has to present photo identification in order to pick up the money.

The downside? Using an agent isn't as convenient as sending funds either online or via the phone. You have to physically visit an agent, and your recipients would have to do the same at their locations. That can be challenging if the recipient lives in a remote part of the world, far from post offices, airports, financial institutions and other such places where money transfer firms are typically located. With that in mind, be sure to visit the money transfer firm's Web site for a list of agent locations -- and their hours -- before completing your transaction.

Find out all you can about fees as well, as remittance costs can add up quickly. The fees vary depending on the amount you're sending, where it's going and how fast you'd like it to get there. For instance, using Western Union to send $200 from Chicago to Mexico for arrival within three days will set you back $7.99. It's $14.99 to get it there in minutes.

Sending money online
Don't want to bother with visiting a brick-and-mortar store or dealing with an agent in person? MoneyGram, Western Union and a growing number of other firms let you handle money transfers via your computer. The primary advantage: convenience. You can send money from the comfort of your home whenever you like.

What you can't do, however, is pay with cash. You'll need to fund the transaction with a bank account or credit card.

iKobo, based in Maitland, Fla., is one company that offers online transfers. Here's how it works:

  • To start, create an account with the site, provide information such as your name, street address, phone number and e-mail address. You'll also have to provide answers to security questions, such as your mother's maiden name. You'll then receive an e-mail confirmation with a link back to the site.
  • After signing in, provide the name and contact information for the recipient along with the amount you'd like to send.
  • Next, provide your credit card or bank account information.
  • Once you've identified who is to receive the money and the amount, iKobo mails the person a reloadable debit card. You can send between $10 and $1,000 per transaction and from the United States; you can send funds to up to four cards at once.
  • The recipient then activates it by logging onto a computer and verifying the card number and personal identification number.
  • At that point, the money you've sent is loaded onto the card, which the recipient can use at stores and ATMs that accept Visa, says Craig Taylor, chief marketing officer with M2 Global, iKobo's parent company. In some countries, card recipients can activate their accounts through their phones.
  • After the first transaction, any additional funds sent to the card are available immediately.

For your first transaction with iKobo, you can expect to pay two fees. The first is to send the Visa card to the recipient, and this ranges from $2.99 for cards mailed within the U.S. to $24.99 for cards sent internationally via Federal Express. On every transaction, including your first, iKobo also charges a money-transfer fee. Sending $200 from the U.S. to Mexico will run $8 when funded from a bank account, and $11.50 when funded through a credit card. Add in the cost of sending the actual card, and your total can jump to more than $36., based in San Francisco, lets you electronically send money from your bank account, credit or debit card or PayPal account. The recipient can pick up the money at a partner bank or retailer; in China, the person can get it at a branch of the national postal system. The money can also be deposited in the recipient's bank account. In several countries, the funds can be delivered to the recipient's home.

It can be daunting to send money overseas. You want a person in front of you, who you can come back to if there's a problem.

-- Saul Wolf
Remittances manager, World Council of Credit Unions

As with other services, fees vary. Sending $200 from a U.S. bank account to Mexico will cost $4.99. Doing the same transaction with a credit card or PayPal account runs $9.99

But is it safe to send money online? Mark Beccue, a senior analyst of mobile money services with Oyster Bay, N.Y.-based ABI Research, says that the firms offering these services take a number of steps to ensure the security of the transactions., for instance, encrypts all personal information, says Julian King, senior vice president of marketing and corporate development. Its computers reside behind a firewall and aren't directly connected to the Internet. In addition, all employees must pass criminal and financial background checks before they're hired.

Coming soon: sending money to a cell phone
In many developing parts of the world, people are more likely to have access to mobile phones than to banks or the Internet. With that in mind, a few companies and organizations have announced plans to develop money transfer services that will let recipients receive money via their phones. For instance, in August 2009, MoneyGram announced plans to enable recipients of money transfers in some parts of the world to use their mobile phones to collect the funds. At this point, the company hasn't released any information on pricing or availability.

One obstacle when it comes to using cell phones to transfer money is the lack of clear regulation, Wolf says. "There are questions about how the telecommunications regulations overlay with money laundering regulations." As a result, while mobile money transfers are a long-term solution, movement to date has been slow, he adds.

That said, some industry experts expect these obstacles to be overcome and mobile phone use to grow. Juniper Research Associates predicts that more than 500 million people worldwide will use mobile devices to transfer money by 2014.