The second quarter of 2010 saw the highest charge-off rates in history for credit card debt - over 10% of outstanding accounts!

A charge-off does not remove the debtor's obligation to pay the debt, it just moves the debt farther along the collection spectrum toward more intense methods to force payment. The final point in this collection spectrum is when a creditor or their representative files suit and obtains a judgment against the debtor: Garnishment

Garnishments can then be filed against paychecks or bank accounts. With the exception of Federal taxes or child support, garnishments of wages cannot exceed the Federal guidelines of 15% of disposable income. However, bank account garnishments can cause all of the funds in an account to be frozen. This limits the debtor's ability to cover day to day expenses such as housing, utilities, food and medicine.

But starting May 1, 2011 new protections are in place for those least able to have their accounts frozen and their funds unavailable for 4 weeks or more. Federal benefits that are directly deposited into an account via ACH from Social Security, Supplemental Security Income (SSI), Veterans Administration benefits, Federal Railroad retirement, unemployment, or sick benefits, or Civil Service and Federal Employee Retirement benefits cannot be frozen under the new rules and will be available for use by the debtor.

For an account that receives funds electronically, only the funds in the account that exceed the total amount of two month electronic deposits of protected public benefits will be subject to freezing for a garnishment. Some states allow even greater exemptions to protect the assets of recipients of public benefits who are on fixed incomes.

It's a small measure of comfort to those trying to address their debt on limited incomes.