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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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

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  • 35x35
    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

    • 35x35
      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

  • 35x35
    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

    • 35x35
      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

  • 35x35
    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

    • 35x35
      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

    • 35x35
      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

    • 35x35
      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

  • 35x35
    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

    • 35x35
      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

  • 35x35
    Sep, 2010
    Bill
    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.
    0 Votes

  • 35x35
    Sep, 2010
    Becky
    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
    8 Votes

  • 35x35
    Mar, 2010
    Bill
    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.
    0 Votes

  • 35x35
    Mar, 2010
    Sugar
    I don't know if you still check these comments, but maybe you could help me. My husband seperated from his first wife and filed bankruptcy in Dec. of 2000. He walked away from the house that was in his name only, never contacted the bank at all. He "thinks" it was included in the bankruptcy. I checked his credit report a few years ago, and there was judgement against him for the house entered in Feb of 2001. His credit report is now clean. How long do we have to worry about them showing up out of nowhere to garnish his wages, or worse, our current house? We live in PA.
    0 Votes

  • 35x35
    Dec, 2009
    Elridge
    I have received a court judgement from a creditor in another state for garnishing my county retirement pension. I live and worked in Montgomery County Maryland.Can this be done and if so what other resources do I have to avoid this action? Also,if this creditor cannot garnishe my retirement pension income, can I write my bank a letter advising them not to release any money to this creditor?
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    I am reluctant to offer an observation about Maryland's garnishment law because I cannot find all of Maryland's statutes online. In particular, Maryland's garnishment law seems to vary by county, which is unusual. Therefore, I urge you to consult with a Maryland attorney who is experienced in consumer or bankruptcy law. I am not suggesting you should consider filing for bankruptcy, but a bankruptcy attorney will have an understanding of Maryland's garnishment rules. In general, pension income is exempt from garnishment unless the garnishment relates to taxes, child support, or a student loan. However, pension benefits should be held in a separate account and made by automatic deposit. Exempted income should never be commingled with other funds.
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    First, if you feel like you need to speak to an attorney, do it. An attorney's time is not cheap, but the answers you get will be appropriate for the laws in your state and your particular facts. You may walk away from that meeting a couple hundred dollars lighter, but you will know your rights, obligations, and options. Second, keep in mind that the collections process is a long one. Here's a brief explanation of what you are facing. If the creditor is in another state, they need to move that debt to your state, which takes time. If they choose to pursue legal action against you, which I think is unlikely in your case, you will have a notice of that court hearing. That takes time. Finally, there's the hearing itself, which you should absolutely not miss. If that hearing results in a judgment against you, then the creditor can go about garnishing your bank account. The creditor can't seize your retirement income, but they can grab your account if there is retirement income and non-retirement funds in that account. Because it appears that the SoL has passed on the collection of the debt, it is unlikely the creditor will pursue legal action against you because if you raise the SoL issue in the hearing, the judge will prevent the creditor from collecting the debt. However, this is a defense that you must raise. An attorney can explain the exact procedure in Florida to you in greater detail.
    0 Votes

  • 35x35
    Jul, 2009
    christine
    I e-mailed you on 7/7/09 abot my RV repo. I made my last payment 7/14/05.You answered me abot theSOL in Florida is 4 years.Also we have only one Checking account all transaction go thru that account. Should we close the account? how soon can the seize my account? Do you think I need to get an Attorney. thanks
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    For most debts, pension benefits can not be garnished before they are paid to you. Once you receive the pension income it can be garnished, for example if you deposit it in a bank account. If you are aware of a threatened lawsuit or a court judgment against you, consider paying your bills in cash or money order as discussed above rather than depositing your pension check in an account where it could be garnished.
    0 Votes

    • 35x35
      Dec, 2010
      chuck
      You are absolutely wrong and should not be putting this kind of answer on here. Social Security and most all private pensions are exempt from debt collects. some are not like alimony child support and tax. Research this before putthing these kind of answers.
      0 Votes

    • 35x35
      Jan, 2011
      lin
      I'm thinking that a bank could freeze an account at a bank if the foreclosed person deposited their lump sum defined pension benefit into it. Once it's "liquid," and not in a protected company account how would a bank know it was from a pension account? So, would be helpful to have someone clear that up once and for all.
      2 Votes

    • 35x35
      Jan, 2011
      Bill
      Your thinking is correct. That is why a judgment-debtor receiving a pension or a Social Security benefit should have these funds deposited into a separate account that has zero funds from other sources. The judgment-debtor should have his or her bank or credit union place a code on that account that states something to the effect, "Pension and Social Security funds only. May not be levied." Different states and different financial institutions will have slightly different language and account codes to accomplish this notice. The important points to remember are to not intermingle funds from other sources in this account, and to have the account noted as exempt.
      2 Votes

  • 35x35
    Apr, 2009
    Juliette
    I live in alabama. Can my creditors garnish my pension income. I retired from the city of birmingham
    10 Votes