Debt collectors often use fear and intimidation to elicit payments from debtors. If you're living on a fixed income consisting of retirement benefits, you have little to fear from debt collectors. Most have no legal rights to your retirement benefits unless you hand them over voluntarily.
Facts
Debt collectors have the right to seek a garnishment order against you if you refuse to pay your debts voluntarily. Garnishment allows the creditor access to a portion of your wages and any nonexempt funds you hold in your bank accounts. Retirement benefits, however, are exempt from garnishment. A debt collector can neither prevent you from receiving the full amount you are due nor can it seize your retirement benefits directly from your checking or savings account.
Types
The types of retirement benefits that are exempt from collection efforts aren't restricted to private pensions or Social Security payments. Retirement savings accounts, such as 401(k) plans, 403(b) plans and IRAs, are exempt from seizure as well. Individuals with a private trust fund set away for their retirement also receive protection from losing their retirement funds to debt collectors.
Features
If a creditor obtains a garnishment order against you and pursues retirement benefits you hold in your bank account, you must notify the bank that the funds contained within the account are exempt. If you fail to notify the bank of your legal exemption, it will seize your retirement benefits and remit them to the debt collection agency. Should this occur, you have the right to file a lawsuit against the debt collector and demand that it return your retirement benefits.
Considerations
The Fair Debt Collection Practices Act states that debt collectors cannot threaten to take any action that they are not legally permitted to take. In the interest of meeting quotas and making commission, however, it isn't uncommon for debt collectors to threaten to seize all manner of exempt funds, including retirement benefits. If a debt collector threatens to garnish your retirement benefits, you can file a lawsuit against the company for violating FDCPA guidelines.
Warning
Although most debt collectors have no legal right to your retirement money, the federal government is the exception to the rule. If you owe a debt to the federal government, such as unpaid taxes or a defaulted student loan, the government may hire a private collection agency to pursue you. The government faces few collection restrictions and can withhold or seize your retirement benefits in lieu of payment.
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