Rogue Debt Collectors Illegally Freeze Debtors’ Accounts
I don’t usually watch TV. Not because I think it’s a waste of time, nor because I think there are no decent programs to watch. I just have quite a bit going on at the time, so it takes a conscious effort to actually sit through the occasional NBA game, American Idol episode, or that train wreck of a show called The Moment of Truth (one of my guilty pleasures).
Tonight was an exception though, and guess what? One segment of news had me scrambling for pen and paper. My9’s Unit 9 Investigates was airing a report of how debt collectors used borderline illegal tactics to freeze debtors’ bank accounts without warning in order to force them into paying. I ended up not only writing a transcript of their investigation, but also delving into debt collection exemptions, as well as notable exceptions to the exemption provision. Very interesting stuff!
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Victims like Moise Amors or Waverly Taliaferro typically went to the ATM only to find out that their accounts were frozen, while they had very little cash in hand. Taliaferro’s family ate rice for 23 days, having nothing left in their cupboard, and he personally lost 40 pounds.
The victims’ lawyers point out that the practice is illegal, since the frozen accounts contained federal Social Security and Disability payments that are exempt from debt collection. Neil Fogarty, an NJ Legal Services lawyer, says: “It’s a financial disaster, and the Social Security law says seizing social security is illegal. Period. […] Unfortunately, it happens every day”.
The consequences? In Amors’s case, his bank charged him a $40 penalty for every bounced check, plus a $100 processing fee for freezing his account (even though he didn’t initiate the request).
Unit 9’s report goes on to say that the victims admit they had debt, but that’s clearly not the point. Federal law expressly states that debt collectors can’t touch Social Security, SSI (Supplemental Security Income), Worker’s Compensation, Disability Benefits, Unemployment Benefits, or Veterans Benefits.
How can this go on even though it’s clearly against the law? Debt collectors walk a very fine line. Peter DeFelice, a former debt collector, says that since most debtors don’t know the rules, debt collectors are able to capitalize on that. They obtain court orders to freeze debtors’ accounts and many banks simply obey. When the panic-stricken debtors call, they’re told to pay the debt, and their accounts will be released.
“You’re not telling them on the phone that you can take that Social Security money because that would be illegal, but you’re not telling them that you can’t, and that’s how they can go around saying that they’re not doing anything illegal”
Johnson Tyler, a South Brooklyn Legal Services lawyer, has sued banks to release victims’ money. But he says that banks should refuse to freeze accounts when they can clearly see where the deposits are coming from. The banks can tell when it’s exempt.
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Turns out CNN published a report in February about rogue debt collectors. While the scope of their article was much broader than ours, they also point out that “Collectors can’t legally claim federal benefits, such as Social Security or your retirement accounts, like your IRA or 401(k).”
Victims of such violations should definitely take action, starting with filing a complaint with the Federal Trade Commission at 877-FTC-HELP or going to www.ftc.gov. They should also contact their state attorney general’s office.
They also have the right to sue a debt collector in state or federal court within a year of the date the law is violated. A victory will allow them to recover money for the damages they suffered plus an additional amount up to $1,000.
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In a nutshell, what is exempt from debt collection?
A creditor or debt collector cannot force you to use the following to pay a debt:
- Public Assistance (PA)
- Supplemental Security Income (SSI)
- Social Security
- Social Security Disability (SSD)
- Veterans Benefits (VA)
- Child Support
- Spousal Maintenance
- Workers Compensation
- Unemployment Insurance
- Railroad Retirement Benefits
- Black Lung Benefits
The following assets are also exempt:
- Public and private pensions
- Retirement savings accounts like 401(k), 403(b), and Individual Retirement Accounts (IRAs)
- All of the principal and 90% of the payments from a private trust
If you receive PA or SSI, all of your earned income is exempt from debt collection. Earned income up to 30 times the minimum wage per week, after taxes, is exempt. The federal minimum wage is currently $5.85 an hour. If you take home $175.50 per week or less, all of your earned income is exempt from debt collection.
If you take home more than $175.50 per week, 90% of your gross income or 75% of your disposable income, whichever is greater, is exempt from debt collection.
90% of income earned within the last 60 days is exempt from debt collection. If you have a frozen bank account, and all the money in the account is from recent paychecks, most likely it is all exempt from debt collection.
On a related note, you should be aware of the statute of limitations on the collection of your credit card and other debt to know if it has expired. If yes, it is also exempt from debt collection.
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What about student loans, child support debt, or back taxes?
The exemptions from debt collection discussed above apply to private debts like credit cards, medical bills, and bank loans. If you have child support debt, or if you owe money to the government for taxes or a student loan, different rules apply.
For example, if you don’t pay your federal student loan, debt collectors can garnish your Social Security wages and prevent you from renewing any state licenses according to Mark Kantrowitz of Finaid.org. Debt collectors can even dip into your tax refund. Past-due child support can be collected from federal and state income tax refunds, liens placed on your property, or sale of your property. As for the IRS, it’s allowed to take just about everything you own to sell and redeem the money you owe, without having to take you to court or get a judgment from a court. Some of these include any and all bank accounts, earnings of all kinds, any assets that you have transferred to your family and friends, any real estate that you own (this includes your home, your furniture and your vehicle), any federal pensions, the liquidity of any life insurance that you have, any benefits or income from Social Security.
April 15th, 2008 at 5:01 am
[...] presents Rogue Debt Collectors Illegally Freeze Debtors’ Accounts posted at Your Finish Rich Plan. This is a scary story of debt collectors who would freeze pension [...]