Can Debt Collectors Seize My Retirement Benefits?

February 5, 2020

The percentage of in-debt adults aged 65 or older rose to 60 percent in 2016, according to a survey commissioned by the National Council on Aging. Seniors are in debt now more than ever and many are concerned about whether their retirement benefits can be taken by debt collectors. The answer depends on where you live. In New York, certain types of income and benefits are generally exempt, however there are limited exceptions.

Judgment creditors are prohibited from garnishing retirement benefits. Federal law prohibits creditors from collecting money in pension plans set up under the Employee Retirement Income Security Act (ERISA). Some types of qualified ERISA plans include:

  • 401(k) accounts
  • Profit-sharing pension plans
  • Health Reimbursement Arrangements (HRA) and Health Savings Accounts (HSA)
  • Employee welfare benefit plans, such as dental and vision plans, group health and life insurance plans, accidental death or disability plans, daycare, wellness programs, and other employee assistance programs

New York Retirement Accounts

Many states allow creditors to access retirement benefits that are not deposited into a qualified ERISA account. However, in New York, creditors are prohibited from garnishing wages from non-ERISA retirement accounts as well. Some types of non-ERISA accounts that are typically exempt from collection in New York include:

  • Roth IRAs
  • Keogh Plans
  • Simplified Employee Pension (SEP) Plans
  • Single-participant or owners-only plans
  • 403(b) plans
  • Employer-only plans
  • Government or church plans

There are some narrow exceptions to this rule. Creditors may be able to get funds from ERISA accounts in certain circumstances, such as for a Qualified Domestic Relations Order (QDRO), or Internal Revenue Service tax garnishment. ERISA benefits may also be seized by the federal government for criminal fines and penalties and to pay for civil or criminal judgments against the debtor.

Judgment creditors may also be able to access non-ERISA accounts for those reasons, as well as to collect contributions made within 90 days before the interposition of the claim on which the judgment was entered for fraudulent contributions.

Retirement Accounts Protected in Bankruptcy

If you choose to file for either Chapter 7 or Chapter 13 bankruptcy, ERISA- qualified accounts are fully protected. Traditional and Roth IRAs are exempt from creditors up to $1,362,800 per person. This amount is adjusted every three years to account for inflation and is set to be adjusted again in 2022.

However, keep in mind that if you receive payments from your pension or retirement account, those funds may be calculated into the Chapter 7 means test. For assistance in protecting your retirement benefits, contact an elder law lawyer who can explain your legal rights and options.

Brooklyn Elder Law Lawyers at Korsinsky & Klein, LLP Help Seniors Protect Their Retirement Benefits

If your retirement benefits are in jeopardy or have already been garnished, contact a Brooklyn elder law lawyer at Korsinsky & Klein, LLP. Our experienced attorneys are dedicated to helping clients with all types of financial matters, including disability and estate planning. We represent clients throughout the state, including Manhattan, Long Island, and Westchester, New York from our offices in Brooklyn, New York, and Lakewood, New Jersey. To discuss your case, contact us online or call us at 212-495-8133.