Do you know if Chrysler pension is paid from a trust that prevents it from bring able to be garnished?

Garnishment of retirement accounts

Wage garnishment is the legal process used by creditors to take a portion of a debtor's wages. The good news is no creditor can obtain a wage garnishment of your income until they have gone to court and obtained a court judgment. Recently on our forum we had a user ask, "Can I have my pension benefits garnished by a creditor?"

What wages and income are protected from wage garnishments?

State laws vary, and it's important to talk to the human resource manager from your company to determine the laws in your state, but generally speaking, income which may be protected from garnishment include Social Security, aid to families with dependent children, general assistance, unemployment compensation, certain pensions and workers' compensation benefits.

Is my pension annuity safe from garnishment?

A pension annuity is a retirement benefit paid to you in a set amount every month after you have retired. Federal law prohibits creditors from garnishing money from a pension plan that was set up under the Employee Retirement Income Security Act (ERISA). Accounts which are generally protected include 401K accounts, pension profit sharing plans, group health and life insurance plans, HRAs, HSAs, and accidental death or disability benefits. Exemptions may apply to some accounts, however, if you owe spousal or child support or the IRS has a tax garnishment.

***Warning***

In some cases ERISA retirement plans are protected, but if the money is deposited in a bank account a creditor may then have access to the funds. Make sure not to co-mingle protected pension payments with other income or you could have the money seized.

Pensions not protected from garnishment

Some states may allow accounts which are not qualified or covered by ERISA to be garnished by creditors. For instance, California state laws do not protect all non-ERISA accounts from creditors. Plans which may have some vulnerabilities include IRAs, Roth IRAs, SEP and Keogh Plans, and 403(b) plans for employees of a public school or university.

However, if the courts determine your pension plan is not protected they will not allow all of it to be garnished. State laws will determine the amount which is protected. Generally, courts will let you keep funds from your IRA and other non-ERISA accounts which they deem "necessary for the support of you and your dependents at the time you retire."

Private employer plan

There are other types of employer private retirement plans that do not fall under ERISA but may still be protected. Specifically, if the PRP is available for individual employees when the employer did not offer pension plans or other ERISA accounts there may be some type of protections for the debtor.

Bottom line: Given the complexity of state and federal laws, the exemptions allowed for some creditors, and the number of different accounts, it may be time to talk to a lawyer or someone who is familiar with the laws in your state to see if your specific account is protected from a judgment. Keep in mind, if you decide to file bankruptcy you may also receive additional protection of your retirement accounts up to a pre-determined level.