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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?

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Updated: Mar 27, 2014

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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

29 Comments

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  • RO
    Mar, 2014
    Rita
    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?
    0 Votes

    • BA
      Mar, 2014
      Bill
      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.
      0 Votes

  • CS
    Feb, 2014
    Cindy
    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?
    0 Votes

  • 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
    Feb, 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