When Pensions Can Be Garnished

Can my pension benefits be garnished by the mortgage company?

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Bill's Answer: Answered by Mark Cappel

Generally, pensions cannot be garnished, except for child support. Let us look at the rules and facts in your situation.

Foreclosure

When home is foreclosed upon, the mortgage lender usually auctions the property at a foreclosure sale, applying whatever amount is received at the foreclosure sale to the debt owed on the mortgage. In many cases, the sale price at auction is not sufficient to cover the mortgage and other secured liens on the property, such as home equity loans; the difference between what you owe on the property and what the lenders actually receive is called a deficiency balance.

In many states, including Rhode Island, mortgage lenders can pursue borrowers for deficiency balances resulting from foreclosure on mortgage and home equity loans. To read more about the foreclosure process, visit the Bills.com foreclosure page.

If you decide to allow your home to go into foreclosure, and assuming the foreclosure sale does not cover the full amount of your mortgage or home equity loan, you will likely own a deficiency balance, which the lender could attempt to collect. Its collection efforts could range from simple collection calls and collection letters all the way to filing a lawsuit against you for the balance owed.

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If the creditor does try to sue you, and if the court grants it a judgment against you, the creditor may be able to place a lien on any real property you own. You may be able to work with the creditor to repay the debt to prevent the negative consequences of the creditor’s collection efforts. From my experience, most mortgage and lenders are willing to offer flexible repayment terms to borrowers who default on their loans.

Bankruptcy

However, if you find the deficiency balance claimed is too large to pay off within a reasonable time, or if the creditor is unwilling to work with you to establish workable payment terms, you may wish to consider filing for bankruptcy protection to resolve your deficiency balance. Consult with a bankruptcy lawyer in your area if you consider filing for bankruptcy protection. Visit the Bills.com bankruptcy page to learn more about this option.

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Pensions and Garnishment

In your case, bankruptcy may be the best solution, but it may not be absolutely necessary. Most pensions, like other forms of retirement income, are exempt from garnishment or attachment to repay court judgments. It is possible that you could simply allow this debt to sit unpaid indefinitely. In many cases involving retirees, the only major drawback to doing so would be the negative impact this unpaid debt would have on your credit rating.

If the lender sues and obtains a judgment against you, it could attempt to force the sale of various items of personal property to pay the outstanding debt, though this procedure is very seldom used except in those cases in which the debtor had high-value luxury items, such as a new Mercedes-Benz.

Again, consult with an attorney licensed in your state to discuss the risks and benefits of allowing this debt to go unpaid, and what action the creditor can take against you to force payments.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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Comments (29)


Rita O.
Detroit, MI  |  March 06, 2014
I'm going to turn 55 this year and will be allowed to take an early pension, due to the fact I'm disabled. I receive social security disabilty and I'm not able to pay all these bills that are piling up. If I take a pension here in Michigan and I have judgements for medical bills and such can I be garnished on my pension? Also, I was considering putting the lump sum into an IRA, can that account be safe?
Bills.com
March 27, 2014
Mostly good new for you. Under Michigan law, the following income sources are exempt from garnishment before they are paid to you: unemployment compensation, workers' compensation, state and federal civil service retirement benefits, and military retirement benefits. Michigan law also exempts Individual Retirement Accounts (IRAs) and life insurance payable to a spouse or child of the insured.

In Michigan, pension benefits cannot be garnished before they are paid to you for most debts. (The exceptions are some taxes and child support.) Once your pension income is deposited in your bank account, however, it can be levied.

See the Bills.com article Michigan Collection Laws for clarification on these and other Michigan account levy and garnishment rules.
Cindy S.
Mt Morris, MI  |  February 18, 2014
I am paying way too much for a truck payment. In research to check on lowering this payment I find the dealer ship screwed me out $8,000 plus I drove one truck a week and it did not work out so I got a different one and they charged me twice for sales tax. I have been to the dealership to work this out but no luck. I am 86 and I am now at the point to just let truck go back. Can they garnish my Social Security and Pension?
Bills.com
February 21, 2014
Consult with a lawyer in your state who has consumer law experience to learn if the dealer acted in accordance with state law. He or she can describe the collections laws in your state, and if your pension is at risk. Your Social Security cannot be garnished for this type of debt.
Elizabeth H.
Raymond, NE  |  March 26, 2012
I own a home in Georgia (deceased husband's name is still on the mortgage). I no longer live in the home and have been trying to sell it for 18 months. My only income is Social Security and two small checks from deceased husband's retirement. I can no longer afford to keep paying the mortgage and the mortgage company will not respond to my calls or letters. If I have to "give them the house back" can they take my retirement checks if there is a deficiency balance after they sell the house?
Bills.com
March 26, 2012
Unlikely. I have three reading assignments to help you understand your rights and liabilities:

Consult with a Georgia lawyer to learn answers to your specific questions.

C. L.
Pontiac, MI  |  February 29, 2012
I was recently forced to retire and a year later divorced being left with the mortgage and all household debt in order to protect my pension. I cannot pay for the only credit card that I have and the creditor is taking legal action. The credit card company only wants to accept at 21,000 payment to settle the debt of which I do not have. I am in Michigan, can they garnish my pension, or freeze my bank account?
Bills.com
March 01, 2012
Most pensions are not able to be garnished by standard judgment-creditors. I suggest that you speak to the entity that issues your pension checks and get their confirmation my opinion.

Bank accounts can be garnished in Michigan, once a creditor obtains a judgment. Your pension funds may have a certain level of protection. Protections vary from state-to-state, where certain dollar caps apply or where protections are restricted to funds that are deposited electronically. I advise you to speak with both your bank and with an attorney, to find out what steps you need to take to best protect yourself.

If your income and assets are beyond the creditor's reach, you can still attempt to negotiate a settlement post-judgment. You don't say how much equity, if any, is in your home. Michigan has a very small homestead exemption of $3,500. If you have equity, your creditor may move to file a lien that will encumber your home. If you lack equity, consult with a bankruptcy attorney to see if you can discharge your debts via bankruptcy.
Gregoy G.
Las Vegas, NV  |  October 18, 2011
Can my pension monthly payment be garnished in the state of Nevada? Also if I file bankruptcy is this monthly pension protected? I heard there is an exemption up to $500,000 however I can no longer take a lump sum payment as I selected and am receiving monthly payments. Thanks
Bills.com
October 18, 2011
The answer to your question depends on the type of pension. In general, the answer to your question is no, but it depends on the type of pension you have. You mentioned Nevada. See NRS 21.075 and NRS 31.045 for lists of Nevada wage garnishment exemptions.
Bill
December 14, 2010
Chuck: We agree regarding the garnishment of pensions and Social Security. The reader asked if pension or Social Security funds deposited into an account are vulnerable to levy (called account garnishment in some states). My April 6, 2009 reply was carelessly worded, as I think you are pointing out. If an account contains nothing but Social Security or pension benefits, then in all states that I am aware, that account is not subject to levy. However, if that account is co-mingled with funds from other sources, then it is subject to levy.

What I should have written was this: Deposit all Social Security and pension benefits into a separate account with no other funds. Ask your bank or credit union to add a notation to the account that reads something like, "Contains pension or Social Security benefits only. Not subject to levy." Each institution will use a different phrase or code to accomplish this notice.
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Lin S.
New Hope, MN  |  January 08, 2011
Thanks for the follow up to my earlier comment, this is a wonderful site and you are wonderful for helping people with your advise, Thank you. I'm hoping I can get your advise on this matter. Again, I'm on Soc Sec and am requesting a lump sum payout of my defined pension now to pay bills etc. I live in Minnesota and been turned down for home modification from BOA after months of struggling. I will be going into foreclosure (no other choice now.) BOA will most likely "1099," me the difference between what it sells for and the balance of mortgage owed. Assuming this occurs I will need to include that 1099 figure on my taxes and it now becomes an "IRS," issue and wonder if they can garnish my soc sec and/or pension? I read your section but still am foggy on the answer. I will take your good advise and advise my bank to code things correctly and not intermingle any other sources (have none but always hopeful:) I'll await your reply on the IRS question, thanks again!
Bills.com
January 10, 2011
Lin, when a debt that is greater than $600 is forgiven by a creditor, the creditor is required to issue a 1099-C to the debtor. The 1099-C lists the dollar amount that was forgiven. The recipient is required to include the 1099-C on his or her income tax return for the tax year in which the debt was forgiven. In most cases, the recipient must declare as income the amount on the 1099-C. Regarding a forgiven mortgage debt, a taxpayer doesn't need to include as income debts that meet the rule of the Mortgage Debt Relief Forgiveness Act of 2007. Also, anyone who meets the rules laid out in the IRS Form 982 does not need to declare the forgiven debt as income. The From 982 is time-sensitive; it can only be submitted until October 15th of the year that the tax return was due. Check with a competent tax professional, to see if you will have to declare the forgiven debt as income or if you will be excused from doing so due to either the use of the Form 982 or the provisions of the Mortgage Debt Relief Forgiveness Act of 2007.
Dan S.
San Ramon, CA  |  December 06, 2010
I'm contemplating on receiving, an early (Absence from industry) pension payout, from a California, local workers union. I've been out of work for 11 months. I'm currently in default of my federal student loan. If I receive this pay out can the fed garnish or take my pension payout? Thank you so much.
Bills.com
December 06, 2010
See the Bills.com page Garnishing Pension to read a general discussion of your question and links to California court documents that discuss California garnishments specifically. If you have a private student loan, my instant analysis is that you have nothing to fear. However, if the student loans were federally backed, then there is a small possibility your pension may be subject to administrative garnishment. Consult the pages I mentioned to learn more.
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Ann A.
Elizabethtown, NC  |  September 28, 2011
Feel for you. I left in 2006 from local 393 and moved to north carolina. Holding on by a thread, good luck
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Bills.com
September 21, 2010
See the Bills.com resource Garnishing Pension to read a discussion of the issues you raise in your message, including how to respond to a garnishment order in California.
Becky .
September 20, 2010
Heloo, so I had a question. My parents are on SSI disability and my dad has a disability retirement pention from CA school Dist. My dad recently became ill and had an extensive stay in the Hosp. with out insurance. Now the collection agaency has sent them a Judgement notice on this account for over $4,000. My question is can thier SSi or retirement pention be garnished?? They have a bank account but all that ever goes in there is retirement money. They have nothing else. What should we do about this matter. any suggestions?? Thank you
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Bills.com
March 29, 2010
To my knowledge, in Pennsylvania a lender can sue for deficiency within six months after the foreclosure. On other consumer debt, the statute of limitations is four years. Consult with an attorney in Pennsylvania to be certain that any liability for the collection of the 2000/2001 debt ended in either 2001 or 2005.
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