Can a Lender Garnish Pension Benefits?

Published on Oct 29, 2014 07:06 am

As a retiree, you may have had a hard time keeping up with some bills in your past, or even recently. If any of those bills moves on to collections, there are a variety of techniques that creditors can use to try and recover what may have even progressed to be a court judgment.

Though the rules can vary slightly depending on the type of pension, pension benefits are generally protected from lender garnishment. However, the protection that your pension gets isn’t always conferred in perpetuity. Just because your pension itself is protected, that doesn’t mean a lender can’t eventually access it once you deposit in the bank.

A Creditor’s Options
When your account ends up in collections, your creditors have a few different ways to collect any court judgments from you. While wage garnishment is one method, it isn’t the only one. A collector can also come after your personal property or your bank account, separately. In some states, your real estate can be taken to pay off a judgment. Each of these options exist in addition to the collector’s ability to have both your delinquency as well as the judgment reflected on your credit report for other creditors to see. While it’s hard for a creditor to garnish your pension payments directly, the money could get caught up in other collection activities.

Federal Benefits
The federal statutes are very clear on the status of federal pension benefits. If you’re getting money from a federal agency in the form of a pension or as Social Security benefits, those funds are generally protected from garnishment by a lender. This applies to military pensions, federal employee pensions, railroad pensions and other types of federal payments. However, these funds can be garnished to pay federal taxes or student loans. (Reference 2)

Private Pension Benefits
The law generally prevents creditors from garnishing private pensions and other retirement savings vehicles that fall under the Employee Retirement Income Security Act. ERISA requires that pension plans have a rule that stops their benefits from being assigned to a creditor. However, the plan must meet ERISA’s requirements plus the Internal Revenue Service’s rules for special tax treatments. (Reference 3) Private pensions granted to employees usually meet this requirement, while individual retirement accounts and simplified employee pensions (used by self-employed people) do not.

Bank Accounts
A creditor’s ability to seize your bank account is limited. A bank or other financial institution that gets a court order to freeze your account has to allow you to access any federal benefit payments that come into the account. However, the protection only applies to federal benefits that are direct deposited, and it only protects the past two months’ worth of deposits. Furthermore, if you deposit private pension benefits, they aren’t protected. This is one way that creditors can work around the ban on garnishing your pension checks. (Reference 3)

It’s important to understand creditor’s options once they’ve received a court judgment against you. While your pension funds may be protected, that isn’t always a complete representation of protection. Take care to ensure that you don’t have other accounts with late payments heading to collection by checking your credit report, and working to better understand how to care for your credit in general.

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About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.

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