Can a Lender Garnish Pension Benefits?

Creditors can use a number of different methods to attain payment of a delinquent debt. One of the most severe methods is the garnishment of an individual's wages. When wages are garnished, it means that the employer siphons off a portion of the payment to the creditor. This is generally done until enough money has been set aside that the debt has been paid off. Pensions, however, cannot be legally garnished.

Garnishment

In order to garnish a debtor's wages, a creditor must first receive the permission of a civil court judge. Before receiving this permission, the creditor must win a judgment against the debtor. Usually this will be done by filing a breach of contract suit alleging that the debtor violated the terms of a loan agreement. All garnishments must be undertaken with the express permission of a judge; a creditor cannot attempt garnishment extra-judicially.

Exemptions

Certain types of income are exempt from garnishment, including pensions. While a normal paycheck can usually be garnished, a pension -- a regular payment made to a retired person by his former employer -- cannot. Federal law prohibits most types of retirement benefits, including Social Security benefits and disability payments, from garnishment. Pensions are considered a type of retirement benefit and remain exempt.

Bank Account Freezing

While a pension cannot be garnished, it can be seized from a frozen bank account. Although pensions are exempt from garnishment, they are not exempt from other types of forcible seizure. So if a debtor deposits the pension in a bank account, a creditor could petition a judge to have the bank account frozen. After an account is frozen, the lender may be allowed to withdraw money from it to pay off the debt.

Considerations

If a person cashes a pension check instead of depositing it in his account, creditors may be unable to seize it. However, many pensions are deposited through direct deposit, meaning the recipient may not have a chance to access the money before creditors freeze the account. Money can be deposited in a frozen account but not withdrawn. Also, although pensions are not exempt from seizure, some other types of retirement benefits are. All Social Security benefits, for example, cannot be removed from a person's bank account.