Can a Civil Service Retirement Account Be Garnished for Debt?

Although debt collectors are infamous for their nonstop telephone calls and frequent letters, they are not restricted to procuring payments only from those who send them voluntarily. If a creditor takes legal action against you and the court sides with your creditor, the judge issues the creditor a money judgment. Your creditor can then use its money judgment to seize certain assets and forms of income.

Garnishment Exemption

A creditor can use its judgment to apply for a writ of execution, which it then serves on the debtor's employer. The writ of execution forces the employer to withhold earnings from the debtor's paycheck and distribute those earnings to the creditor each pay period until the debtor either finds a new employer or pays off the debt.

Civil service benefits are paid to certain retired federal employees. The Federal Trade Commission notes that, because civil service retirement pay is considered a federal benefit, commercial creditors can neither seize nor garnish your civil service checks.

Bank Levy

While a commercial creditor cannot garnish your civil service retirement pay, it can seize your benefits from your bank account if you do not take steps to protect your income. Creditors with a judgment can satisfy the debt by freezing your bank accounts and garnishing them directly.

Civil service benefits are exempt from seizure even after you deposit them into your bank account. After receiving a writ of execution from a creditor, banks are required to conduct an account review and determine which forms of income within the account are and are not exempt from seizure.

Protection From Seizure

Prior to May 1, 2011, banks were not responsible for keeping track of which funds within an individual's bank account were exempt from garnishment and which were not. Consumers who received exempt benefits were encouraged to keep those benefits in a separate account and instruct the bank that the account contained only exempt benefits. Otherwise, the debtor had to fill out an exemption claim form and attempt to prove the amount of money within his account that held exempt status.

Because banks must now closely review each consumer's banking history and identify exempt deposits, it is no longer necessary for consumers to deposit their federal benefits into a separate bank account to avoid having them frozen by creditors.

Exemption Limitations

Your exemption isn't based on the amount of income within your bank account that came from the federal government but on the amount you typically receive over a two-month period. Two months' worth of civil service retirement benefits are automatically exempt from seizure regardless of whether you already spent them and the remaining funds within your account came from a different source.

For example, if you receive a monthly retirement check for $2,000, your bank account is exempt up to $4,000, since that constitutes two months' worth of benefits. If your account contained $3,000 when the bank received a garnishment order, the whole $3,000 is exempt from seizure. If, however, your bank account contained $6,000, you could lose $2,000 -- even if the entire $6,000 balance was comprised of civil service retirement payments.