These include debts from credit cards, doctor bills, hospital bills, utility bills, phone bills, personal loans from a bank or credit union, debts owed to a landlord or former landlord, or any other debt for personal, family, or household purposes. Even though some or all the money in your account may be exempt from garnishment, the bank may freeze the money in your account above the following amounts:.
The bank gets a writ of garnishment from the creditor for consumer debt. A bank account garnishment can cause bounced checks, overdraft fees, and other bank charges. You must file an exemption claim form right away to get the exempt money returned to your account. Most pensions are exempt from garnishment even after you receive them. But some are not. Do not have pension checks direct deposited into a bank account, if you can help it. See if the pension fund can mail checks directly to your home.
Mandatory deductions include Social Security, Medicare, and federal income taxes. You should not do this. Wages are exempt from garnishment at the time your employer pays you. If you cash your check and put the money in a bank account, or if your employer pays you by direct deposit, a creditor may claim that the funds are no longer exempt as wages.
Your deposit bank can take money from your bank account to pay what you owe them. Retirement plans have provisions preventing creditors from seizing your benefits in them. However, exceptions exist to this general rule, and creditors may reach your retirement plan benefits in some limited circumstances. First, one must understand the protection that federal pension law offers against creditor action.
ERISA requires pension plans to have "spendthrift" provisions which prevent benefits from being alienated from the participant.
What this means is that you are protected from both your creditors and your own desire to spend the money before you retire or are otherwise able to under the terms of the plan. Specifically, ERISA's anti-alienation provision requires that all pension plans contain provisions which provide that benefits may not be assigned to a creditor.
The IRS has also ruled that if a pension plan allows benefits to be alienated from the pension plan to pay creditors, the pension plan itself will lose its favorable tax status. The U. However, local federal courts have interpreted this decision to mean that in order for pension benefits to be protected, three requirements must be satisfied. First, the pension plan must be subject to ERISA; second, the pension plan must be tax-qualified under certain IRS rules; and third, the pension plan must contain a written anti-alienation provision.
While most pension plans meet these requirements, it is important to note that a pension plan covering only the owner, or the owner and spouse, is not considered to be an ERISA plan.
Thus, the benefits in such a plan may fall outside of the protection of the Supreme Court decision should the participant enter bankruptcy. The most common one is when someone is involved in a divorce action and one spouse claims part of the other spouse's pension.
A federal law allows assignments of pension benefits pursuant to a qualified domestic relations order.
This is a state judgment order entered into in connection with a divorce, alimony payments or child support proceedings under state domestic relations law. Ask an Expert Debt Collections Retirement.
Recent Blog. Featured Posts. What should I do? The kind of retirement asset also matters, when it comes to garnishment. For example, the law treats Social Security benefits different than retirement savings, like a k. If you owe back taxes, the government can take up to 15 percent of your Social Security check, even if this levy leaves you without enough money to pay your living expenses.
You can lose much more of your Social Security income, if you owe child support. The court can take up to 60 percent of your retirement check for child support, and 65 percent if you are more than 12 weeks behind.
If you support another child who is not part of the garnishment, the court can take up to 50 percent of your Social Security check. There is no protection for Social Security income you get in the form of a paper check. The law treats pension income substantially the same as Social Security checks.
Child support and government debts, like taxes and student loans, can garnish your pension check, but most other creditors cannot. A creditor might not be able to garnish your pension or Social Security check, but the creditor can take the money after you deposit it into the bank, up to the legal limits. In other words, if you owe money to someone who gets a judgment against you, the creditor cannot intercept the funds before they get to you, but he can take the money after you put it into the bank.
Your retirement savings account , like a k , gets many of the same protections and lack thereof as your pension or Social Security check. As long as the money stays in your k account, most creditors cannot take the funds.
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