Can a Pension Be Garnished or Seized by Creditors?

If you have a judgment against you, a creditor may attempt to garnish your wages to ensure that you pay the debt. To do this, he must return to court and get a court order that requires your employer to withhold the payments. If you aren't working and are retired, your creditor may try to go after your pension. Some pensions are exempt from garnishment by federal statutes, while others are subject to state laws.

Exempt Pensions

Certain pensions are exempt from garnishment by federal statute. These pensions include Social Security, Railroad Retirement, veterans benefits, federal civil retirement benefits, military annuities and foreign service retirement benefits. Each state has laws regarding the treatment of pensions for garnishment purposes; if you are collecting a private pension, or one provided by a local or state government, check the laws in your state to determine whether you are protected.

Pension Garnishment

If you do not collect a federally exempt pension and your pension is subject to garnishment in your state, your pension cannot be garnished like your paycheck, where the payment is taken prior to issuance of the check. In a pension garnishment, the creditor must go after the bank account in which the pension proceeds reside. To do this, he must get a court order that is sent to the bank ordering it to freeze your account.

Frozen Account

If your bank account is frozen, the bank will not honor any drafts that come through and you will not be able to withdraw any money from your account. Typically, this is done after the creditor files a discovery of assets, but in some states the court can freeze your account without notifying you in advance. When you return to court, the judge will determine how much the creditor can take from your account to pay the debt.

Exempt and Nonexempt

If you collect a nonexempt pension and Social Security or another exempt pension, and both are deposited into the same bank account, your state may have a form you can file with the court declaring that your bank account contains exempt funds. The judge will then decide whether to lift the freeze or make a determination as to which funds are exempt and which are not -- releasing the exempt funds back to you.

Your bank can help you prove this as deposit records have an indicator noting that they are exempt funds. If you suspect that you will be sued, you can avoid having your bank account frozen by not depositing the pension payments in the bank. This does not mean you will avoid payment, but you will not lose access to all of your money while the terms of the judgment are worked out.