Can 401(k) Funds Be Subject to Garnishment for Credit Card Debt?

Credit card companies have no access to 401(k) funds.
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You may owe a lot of debt on your credit cards, and if you've gotten behind on the payments there's a good chance the collectors have started calling and making threats. Credit card debt collectors have a notorious reputation for being bullies when they want you to make a payment, so you may wonder just how far they can really go to carry out their threats. The credit card company has the right to sue you in civil court for the unpaid debt plus interest. If the company wins, a judge may allow the credit card company to garnish your wages (depending on the state you live in) to repay the debt. But you do not have to lay awake at night worrying about any threat a credit card company has made to garnish your 401(k) funds. That is one thing they are not allowed to do.


A 401(k) has special protections under the Employee Retirement Income Security Act. Any money an employee has saved in a 401(k) is protected from all types of creditor judgements, including bankruptcy. There is an "anti-alienation" provision in the ERISA Act that prohibits companies from releasing a worker's retirement funds to a creditor while the worker is employed at the company. If an employer were to violate the rule and allow a credit card company to garnish an employee's 401(k) funds, the company's retirement plan would be in jeopardy of permanently losing its tax advantages.


Your retirement savings are safe from creditors as long the money remains in the company 401(k) account. But bank accounts are not protected under ERISA, so credit card companies could potentially gain access to any funds you withdraw from your 401(k) in the form of loans or retirement distributions. If a credit card company wins a civil lawsuit against you, a judge could grant the credit card company a lien against the bank account, allowing the company to seize assets in the bank account. Once the funds from your 401(k) leave your employer's possession, the money is no longer protected by ERISA's anti-alienation provision.


Credit card companies are not allowed access to your 401(k) funds; however, the same rules do not apply to divorce courts and federal tax liens. For example, ERISA's anti-alienation rule does not prevent state courts from awarding money owed for alimony and child support from one spouse's 401(k) account to another spouse during a divorce. Also, the federal government can seize money from your 401(k) to satisfy tax liens brought on by the Internal Revenue Service. State governments do not have the same privilege, so states cannot seize money from a 401(k) to pay state liens.


If a credit card company takes you to court and wins a judgement against you, there's a chance that your wages could end up being garnished. While card companies cannot get their hands on the 401(k) funds you have saved at the company you work for, they could garnish the income you make at the job. Wage garnishment laws vary from state to state. As of 2012, four states do not allow wage garnishment for credit card debt. They are North Carolina, South Carolina, Pennsylvania and Texas.

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