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New York Gov. David A. Paterson last week signed legislation intended to close a loophole in existing law that has enabled debt collectors and credit card companies to freeze bank accounts containing income exempt from debt collection. Income exempted from collection under state and federal law includes Social Security, veterans' benefits, disability payments and pensions. The existing law made no allowance for exempt funds directly deposited and required banks to freeze the account or risk being held in contempt of court. Only after the account was frozen, did debtors receive notice of the restraint, and the burden was on consumers to show that their account contained exempt income, according to the bill, which was sponsored by Sen. Dale M. Volker (R-Depew) and Assemblywoman Helene E. Weinstein (D-Brooklyn). Before creditors seize an account under the new law, debtors must receive notification of exempt funds in their accounts. The new law also provides debtors an opportunity to assert that funds in their accounts are exempt from seizure. The law takes effect Jan. 1.
