When Pensions Can Be Garnished

Can my pension benefits be garnished by the mortgage company?

I live in Rhode Island and bought my home just about 2 years ago. When I bought the house, the loan company arranged a 1st and 2nd mortgage to cover the total cost of purchasing the home? Now, I'm nearing 55 yoa and my health has deteriorated to the point that I am looking to move to a different climate for health reasons. In addition, my health history is such that I can't even get mortgage life insurance to cover the mortgages. So I'm looking at just walking away from the house and letting the bank take it. Because I don't expect to be around this time next year, I'm not concerned about the affect on my credit rating. Here is my concern: I retired from a government job that furnishes me with a private pension. I do not expect to get another full time job and I have no health care benefits. In order to live until whenever, I will need my pension benefits to cover my living and medical expenses. So; can my pension benefits be garnished by the mortgage company? and can I be forced to sell any personal assets (car, motorcycle, or other personal property to offset the loss to the mortgage company?

Read full question
Bill's Answer
4.0
/5.0
(6 Votes)
Bills.com Team
Pro

By

Highlights


  • Pensions are not wages and, except for child support, cannot be garnished.
  • State laws vary on wage garnishment.
  • Once deposited, funds may be open to account levy.

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.

Unsure how to handle your debt? Let the Bills.com Debt Coach tool give you a customized report on your debt resolution options. It’s free!

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.

Struggling with debt? Contact one of Bills.com’s pre-screened debt providers for a free, no-hassle debt relief quote.

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

25 Comments

Recent Best
1500 characters remaining
  • EH
    Mar, 2012
    Elizabeth
    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?
    0 Votes

    • BA
      Mar, 2012
      Bill
      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.

      0 Votes

  • CL
    Mar, 2012
    C.
    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?
    0 Votes

    • BA
      Mar, 2012
      Bill
      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.
      0 Votes

  • GG
    Oct, 2011
    Gregoy
    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
    0 Votes

    • BA
      Oct, 2011
      Bill
      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.
      0 Votes

  • 35x35
    Dec, 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.
    0 Votes

    • LS
      Jan, 2011
      Lin
      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!
      0 Votes

    • BA
      Jan, 2011
      Bill
      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.
      0 Votes

  • DS
    Dec, 2010
    Dan
    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.
    0 Votes

    • 35x35
      Dec, 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.
      0 Votes

    • AA
      Sep, 2011
      ann
      Feel for you. I left in 2006 from local 393 and moved to north carolina. Holding on by a thread, good luck
      0 Votes