We received a writ of garnishment for a customer with two checking accounts at our bank. The only deposits are Social Security benefits, which are directly deposited into the first account then transferred to the second account (and sometimes transferred back to the first account). Are Social Security benefits exempt from garnishment? If so, do they lose this exempt status when transferred out of the original account where they were first deposited?

Yes, Social Security benefits directly deposited into a checking account generally are exempt from garnishment for the two-month period after they are deposited, but we believe these funds lose their exempt status once transferred out of the original account into which they were deposited.

Social Security benefits generally are considered “protected amounts” that may not be garnished during the “lookback period,” which is the two-month period preceding the date of your account review — which must commence no later than two business days following receipt of the garnishment order. (Note that Social Security benefits are subject to garnishment if the United States or a state child support enforcement agency has attached a “Notice of Right to Garnish Federal Benefits” to the garnishment order.)

After receiving a garnishment order, you must review each account in the name of the account holder against whom the garnishment has been issued, but you “shall not trace the movement of funds between accounts by attempting to associate funds from a benefit payment deposited into one account with amounts subsequently transferred to another account.”

If the account review shows that benefit payments were made by direct deposit using a specified entry code during the lookback period, you must immediately “calculate and establish” the protected amount and ensure the accountholder has full access to it. For any account funds that do not meet these criteria or exceed the protected amount, your institution may follow its customary garnishment procedures.

Consequently, we do not believe Social Security benefits directly deposited into an account then transferred to another account would be protected amounts — even if the funds are transferred back to the original account — since financial institutions are prohibited from tracing the movement of funds between accounts when determining whether the funds are protected amounts.

For resources related to our guidance, please see:

31 CFR 212.2(b) (“Federal benefit payments protected from garnishment pursuant to the following authorities: (1) SSA benefit payments protected under 42 U.S.C. 407 and 42 U.S.C. 1383(d)(1) . . .”)

31 CFR 212.3 (“Protected amount means the lesser of the sum of all benefit payments posted to an account between the close of business on the beginning date of the lookback period and the open of business on the ending date of the lookback period, or the balance in an account when the account review is performed.”)

31 CFR 212.3 (“Lookback period means the two month period that begins on the date preceding the date of account review and ends on the corresponding date of the month two months earlier, or on the last date of the month two months earlier if the corresponding date does not exist.”)

31 CFR 212.5(a)(1) (“Timing of account review. When served a garnishment order issued against a debtor, a financial institution shall perform an account review: (1) No later than two business days following receipt of (A) the order, and (B) sufficient information from the creditor that initiated the order to determine whether the debtor is an account holder, if such information is not already included in the order . . .”)

31 CFR 212.4 (“Initial action upon receipt of a garnishment order.

(a) Examination of order for Notice of Right to Garnish Federal Benefits. Prior to taking any other action related to a garnishment order issued against a debtor, and no later than two business days following receipt of the order, a financial institution shall examine the order to determine if the United States or a State child support enforcement agency has attached or included a Notice of Right to Garnish Federal Benefits, as set forth in Appendix B to this part.

(b) Notice of Right to Garnish Federal Benefits is attached to or included with the order. If a Notice of Right to Garnish Federal Benefits is attached to or included with the garnishment order, then the financial institution shall follow its otherwise customary procedures for handling the order and shall not follow the procedures in § 212.5 and § 212.6.

(c) No Notice of Right to Garnish Federal Benefits. If a Notice of Right to Garnish Federal Benefits is not attached to or included with the garnishment order, then the financial institution shall follow the procedures in § 212.5 and § 212.6.”)

31 CFR 212.5(f) (“The financial institution shall perform the account review separately for each account in the name of an account holder against whom a garnishment order has been issued. In performing account reviews for multiple accounts in the name of one account holder, a financial institution shall not trace the movement of funds between accounts by attempting to associate funds from a benefit payment deposited into one account with amounts subsequently transferred to another account.”)

31 CFR 212.3 (“Benefit agency means the Social Security Administration (SSA), the Department of Veterans Affairs (VA), the Office of Personnel Management (OPM), or the Railroad Retirement Board (RRB).”)

31 CFR 212.3 (“Benefit payment means a Federal benefit payment referred to in § 212.2(b) paid by direct deposit to an account with the character ‘XX’ encoded in positions 54 and 55 of the Company Entry Description field and the number ‘2’ encoded in the Originator Status Code field of the Batch Header Record of the direct deposit entry.”)

31 CFR 212.5(c) (“Benefit payment deposited during lookback period. If the account review shows that a benefit agency deposited a benefit payment into the account during the lookback period, then the financial institution shall follow the procedures in § 212.6.”)

31 CFR 212.5(b) (“No benefit payment deposited during lookback period. If the account review shows that a benefit agency did not deposit a benefit payment into the account during the lookback period, then the financial institution shall follow its otherwise customary procedures for handling the garnishment order and shall not follow the procedures in § 212.6.”)

31 CFR 212.6 (“The following provisions apply if an account review shows that a benefit agency deposited a benefit payment into an account during the lookback period.

(a) Protected amount. The financial institution shall immediately calculate and establish the protected amount for an account. The financial institution shall ensure that the account holder has full and customary access to the protected amount, which the financial institution shall not freeze in response to the garnishment order. An account holder shall have no requirement to assert any right of garnishment exemption prior to accessing the protected amount in the account.

(b) Separate protected amounts. The financial institution shall calculate and establish the protected amount separately for each account in the name of an account holder, consistent with the requirements in § 212.5(f) to conduct distinct account reviews.

(c) No challenge of protection. A protected amount calculated and established by a financial institution pursuant to this section shall be conclusively considered to be exempt from garnishment under law.

(d) Funds in excess of the protected amount. For any funds in an account in excess of the protected amount, the financial institution shall follow its otherwise customary procedures for handling garnishment orders, including the freezing of funds, but consistent with paragraphs (f) and (g) of this section.”)