Are creditors trying to reach your bank account for unpaid debts? Is a former spouse demanding you pay child support or alimony? If you're a veteran, you may be wondering whether they can reach your VA benefits. The rules depend on the creditor (the reason for the garnishment) and the type of benefit you're receiving (whether your VA benefits are for disability).
Garnishment of Bank Accounts
For regular income, a creditor can get a court order to take money from your bank account. This process is called garnishment. Garnishment allows a creditor to receive money as soon as it's placed in your account. After a court issues a garnishment order, the creditor sends it to your bank, and the bank is legally required to hold your money. But generally, VA benefits are not allowed to be garnished. This applies to service-connected disability compensation, VA disability pension, and VA basic pension (for those over 65).
Child Support and Alimony
Federal law protects your VA benefits from being garnished to pay regular creditors’ claims, but VA benefits are sometimes garnished to pay alimony (spousal support) or child support. That's because VA benefits are intended to support the veteran's family, not just the veteran; veterans are paid higher monthly benefits if they have a spouse or children.
The maximum amount that can be garnished dependents on how many dependents you have to support, but generally no more than 20% to 50% of your benefits can be garnished. Your benefits cannot be garnished, however, if the garnishment would cause you undue financial hardship. Also, your ex-spouse or child must have filed a form asking for an "apportionment" (portion) of your benefits before garnishment will be considered.
Service-Connected Disability Compensation
One exception to this rule is VA disability compensation. In general, your disability compensation can't be garnished, even for child support or alimony. However, there are a few circumstances in which this compensation is available for garnishment. If you waive a portion of your military retirement in order to receive disability compensation, that portion of income can be garnished for child support or alimony (42 U.S.C. § 659). That's because military retirement pay is considered income, and funds paid by the U.S. government as "remuneration for employment" are subject to garnishment.
While straight disability compensation can't be garnished, a family court can consider your disability compensation when deciding how much alimony and child support you must pay. (Rose v. Rose, 481 U.S. 619 (1987).) (But, to complicate things further, in dividing property at divorce, a court cannot give your ex-spouse part of any disability backpay or disability compensation you have saved up. The Uniformed Services Former Spouses’ Protection Act exempts VA disability payments from being treated as marital property.)
If you file for bankruptcy, your VA benefits will usually not be included in your bankruptcy estate. This means the benefits are protected from creditors; they should not be used to pay off your debts, either under a Chapter 7 or a Chapter 13 bankruptcy.
Protecting Your Bank Account
While banks are subject to rules that require them to protect certain federal benefits from garnishment, sometimes they do make mistakes. To help protect your VA benefits from being accidentally included in a garnishment request, if you have any debt problems, you should have your VA benefits direct-deposited into a separate bank account.
What do you do if the bank freezes your bank account even though the income in the account is exempt? Find out why the bank froze your account and contact the court that issued the garnishment order. Submit evidence that proves that the bank account contains exempt VA benefits, and the amount of VA benefits. This may include bank statements, deposit slips, and documents from the VA.
Once the court issues an order that states the income is exempt, give it to your bank. The bank will then unfreeze the account and allow you take money out again. You should also ask the bank to waive any fees that resulted from the freeze.