Some debtors in Illinois may wonder if defaulting on a credit card can
affect retirement funds. According to a recent article, a creditor must
file and win a lawsuit against the debtor before any accounts held by
the debtor could be subject to withdrawals. Even if accounts and the credit
card are both managed by the same company, the lender is unable to take
funds out of the account without legal authorization.
When seeking funds to cover an outstanding balance, debt collectors are
limited by certain state and federal regulations. For example, the money
held in certain retirement accounts, such as IRAs and 401(k)s cannot be
immediately accessed after the collection agency wins a judgment while
checking accounts can be tapped. However, if the funds from the retirement
accounts are transferred into a checking account, that money is now available
In addition, some of the federal benefits that are completely exempt from
such garnishments unless the creditor is the federal government. These
include pensions from the U.S. Department of Veteran Affairs and Social
Security benefits. However, accounts holding these funds could be frozen
pending a ruling on cases brought by collection agencies against a consumer,
keeping the person from using the funds for expenses.
While some accounts are protected from aggressive collection practices for
credit card debt, some individuals may benefit from filing for more comprehensive federal
protections through bankruptcy. Through that action, the consumer might
be able to avoid harassment from creditors and create a foundation for
a fresh financial start. An attorney that is familiar with different types
of consumer bankruptcy might be able to help a client file and reorganize
his or her finances.
Source: FOX Business, "
Can Credit Card Company Garnish IRA?", Jeanine Skowronski, July 10, 2014