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Can debt collectors garnish your retirement accounts?

Date : Mar 21,2013
By : Amy Lewis

If you have credit card debt or any other forms of unsecured debts, it can either be charged off or else, it can also go into collections. This again if left neglected can lead to lawsuits. It is not only the creditors who can sue you but the collection agencies too can sue you on non-payment of the dues. So, it is always better to take immediate action if you are starting to see debt problems near the horizon. If you have too many debts, you can take the help of a debt consolidation company, in order to pay those off. This is important because, if you let creditors or debt collectors sue you on a debt which you legally owe, and if they win, they can garnish your wages or your bank account. However, the question is can collection agencies garnish the retirement accounts?

Debt collectors and retirement accounts

As per law, none of the creditors and the collection agencies can seize or garnish your retirement accounts and also the social security money, even if they win a lawsuit against you. Even if the creditor or collection agency can put a lien against your property, in most of the states they aren’t allowed to garnish most of the retirement accounts.

1. IRAs – The IRA accounts are protected through the Bankruptcy Abuse Prevention And Consumer Protection Act, back in 2005. As per this act, it prevents withdrawal of as high as that of $1 million with regards to the IRA funds. However, the Bankruptcy Abuse Prevention Act mainly protects you from creditors if you are going to file bankruptcy. So, if there’s more than $1 million in the account, it is going to be counted as your asset.

2. 401k Plans – A 401k retirement plan is the one which is employer sponsored. Such a retirement plan has the protection from the creditors and the collection agencies, and this law has been outlined as per the Employee Retirement Income Security Act (ERISA). This means that none of the creditors can take out any amount of funds from your 401k account.

3. Pension – Pensions are in general excluded from the reach of the creditors, because these too have got the protection under the ERISA laws. Pension received by a person cannot either be designated or moved over to a third party, and this will mean not only the creditors but the debt collectors too. So, even if you are in debt, you can go on to receive the pension just as before. However, the main problem with the money is that once you put it into a bank account or it gets transferred into your bank account, the collection agency can legally put a lien on the same. This therefore means that the collection agency will have to power to take away the money from the account. You can avoid this problem if you avoid getting the pension money directly transferred onto your bank accounts. You can rather have the money sent to you through a check. As a result of this, you may have to live on cash rather than depositing all the money into your bank accounts.

4. Annuities – Annuities are insurance policies which function mainly like those of the retirement accounts. Whether or not the money from such accounts can be garnished is mainly based on the state regulated policies. Therefore, the level of protection actually varies from one state to the other. Like, if you are in Florida, under the state law you will get 100 percent protection on the proceeds made through annuities from the collection agencies. On the other hand, if you are in Colorado you may not get any level of protection on the proceeds. This would mean that the collection agencies garnish such an account and thus can even take out the entire money from your annuity.

So, this is how the garnishment law works. Whether or not your retirement money can be garnished does not only depend on the state you are in, but also type of account you are putting your money in, with regards to retirement savings.

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