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When Pensions Can Be Garnished

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Mark Cappel
UpdatedDec 7, 2022
Key Takeaways:
  • 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.
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?

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

Debt statistics

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Collection and delinquency rates vary by state. For example, in Wisconsin, 16% have student loan debt. Of those holding student loan debt, 6% are in default. Auto/retail loan delinquency rate is 3%.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.

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10 Comments

KKathy, Apr, 2020

What is meant by account levy?

DDaniel Cohen, Apr, 2020

Kathy, an account levy is when money is taken out of an account without the account holder's permission. A levy can result from a judgment-creditor given authority by a court order or a government agency with the appropriate authority to levy the account administratively using powers it is granted, e.g., the IRS. 

Standard creditors need to sue you and obtain a judgment from the court against you before they can move to levy your account. Levies are subject to state law, so if one has a judgment, she should know the state collection laws and how much money, if any, the state exempts from bank levy. You can see the state limits here.

Government entities are vested with the authority to collect on monies owed through a levy. While they don't need to go to court, a Notice of Intent to Levy is commonly required.  The IRS is legally bound to provide a 30 day notice of intent to levy. IRS and administrative levies are not subject to the state collection limits referenced above.

AAnonymous, Mar, 2018

Although many states allow deficiency judgments upon foreclosure sales as the article states it should be emphasized that it is extremely rare for a lender to take steps to obtain a deficiency judgment upon a foreclosure sale. It would also be very unusual, absolutely extremely rare for a judgment holder to take steps to sell a person's personal property. Broaching these possibilities is akin to seriously warning someone about driving to Circle K because they might get hit by a drunk driver. We don't live our lives that way.

DDaniel Cohen, Apr, 2018

A person should know the worst-case scenario before making a choice. It is also prudent to consult an attorney to find out the lay of the land in the area which has jurisdiction for the case. Some areas allow sheriff's sales of personal property more readily than others.

To use your example, if you know that the area in which you live has a large number of drunk drivers, you would use extra caution, even if driving to the Circle K.

RRita, Mar, 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?
BBill, Mar, 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.
CCindy, Feb, 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?
BBill, Feb, 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.
EElizabeth, Mar, 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?
BBill, Mar, 2012
Unlikely. I have three reading assignments to help you understand your rights and liabilities: • Georgia Collection Laws explains your rights as a Georgia resident. • Social Security Garnishment describes the protections in place for your Social Security and pension income. • Mortgage Foreclosure Georgia outlines briefly Georgia's foreclosure process and its anti-deficiency law

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