Bankruptcy FAQ
By: Source: AARP.org Date Posted: 2004-03-24 14:02:47
Are my Social Security or private pension benefits subject to attachment and/or levy by my creditors?
Social Security
A recipient may not assign Social Security benefits. Social Security benefits are also not subject to levy, garnishment or attachment except in special circumstances. The most common exception is where there is enforcement of a recipient's obligation to make support or alimony payments. In this case, up to 60% of the benefit may be garnished (50% if the beneficiary is supporting a family). An additional 5% can be garnished if child support or alimony payments are more than 12 weeks in arrears. Social Security benefits can also be garnished for federal tax indebtedness.
Private Pensions
Under federal law, an employee generally is not permitted to assign or alienate benefits in a private pension plan. One exception is that a voluntary and revocable assignment of no more than 10% of a benefit payment is allowed. Another exception is that payment of all or part of the pension benefit in accordance with a qualified domestic relations order (QDRO) is allowed. A QDRO is a judgment, order or decree of court which creates or recognizes the existence of the right of an alternative payee (spouse, former spouse, child, other dependent) and assigns to that party the right to receive all, or part of, the benefits payable to a pension plan participant.
The anti-assignment provision has been generally held to preclude a judgment creditor from garnishing a debtor's pension benefits. State law may also exempt pension and profit sharing plans from attachment or execution by creditors.
Courts are divided as to whether a participant's interest in a pension fund is exempt from creditors under the Bankruptcy Code. However, the overwhelming majority of cases have held that where a plan participant of an Employee Retirement Income Security Act (ERISA) Qualified Plan has provided the funding for a plan, or where the employee retains control over the corpus of the trust, or where the employee can demand an early withdrawal, the debtor cannot exclude the plan from the bankruptcy estate under the federal law exemption. Although state law bankruptcy exemptions may be more protective of an ERIS Qualified Plan, the state's exemptions may be overall less generous than the federal exemptions.
There is no restriction against garnishment of pension benefits for federal tax indebtedness.
When filing for bankruptcy, what can I exempt from the bankruptcy estate?
The debtor can choose either the state exemptions or the federal exemptions found at Bankruptcy Code §522(d). If the debtor chooses the state exemptions, he or she can also exclude property which is exempt under federal law, other than subsection (d) of §522. Some of the items that may be exempted under other federal laws include:
- Foreign service retirement and disability payments (22 U.S.C. §1104);
- Social Security payments (42 U.S.C. §407);
- Injury of fisherman, seaman, and apprentices (46 U.S.C. §601);
- Civil service retirement benefits (5 U.S.C. §729, §2265);
- Longshoremen's and Harbor Worker's Compensation Act death and disability benefits (33 U.S.C. §916);
- Railroad Retirement Act annuities and pensions (45 U.S.C. §228); and
- Veterans benefits (38 U.S.C.§770(6)).
The choice of which exemptions to take is particularly important to a husband and wife, when only one spouse is filing for bankruptcy. State bankruptcy exemptions may be more or less beneficial than the federal exemptions, when dealing with jointly owned property. Therefore, when advising clients in a case where one spouse is contemplating relief from his creditors through bankruptcy, it is important to carefully determine whether the federal or state exemptions are more advantageous.
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