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Can You Retrieve Debt From a Retirement Plan?

Posted on in Debt Collection

Can You Retrieve Debt From a Retirement Plan?When you receive a court judgment against a debtor, you are looking for any of the debtor’s available money or assets that you can claim. Retirement accounts can be one of the most lucrative assets that a debtor owns if he or she has had time to contribute to it. However, many retirement accounts are protected from creditors, whether after a successful lawsuit or after the debtor has filed for Chapter 7 bankruptcy. Creditors need to understand what type of retirement account the debtor has to know whether they can try to collect from it.

Federal Laws

Both federal and state laws address which types of retirement accounts are exempt from creditors. Federal law protects debtor retirement plans if they are:

  • Qualified retirement plans created under the Employee Retirement Income Security Act; or
  • Social Security benefits.

Common ERISA plans include 401K plans, profit-sharing plans, and deferred compensation plans. An anti-alienation clause prevents creditors from collecting from qualified ERISA plans because the clause states that the participants in the plan cannot give away their benefits and outside parties cannot take them away. This prevents the plan administrator from releasing any funds to a creditor. However, creditors may be able to collect the benefits from an ERISA plan once they are distributed to the debtor.

State Laws

In many cases, the laws of the state in which you filed the lawsuit will determine whether you can collect from a retirement plan. Unfortunately for Illinois creditors, Illinois law gives a broad definition of the types of retirement plans that are protected from creditors. The law states that retirement assets are exempt as long as they are from a public pension or a retirement plan created in good faith to comply with the Internal Revenue Code. Though the law gives some examples of retirement plans, the language of the law allows debtors to claim that almost any retirement plan is protected unless creditors can prove otherwise. Creditors may be able to show that an account is not intended for retirement if the debtor:

  • Did not follow IRC guidelines in creating the plan; or
  • Exceeds the contribution limits of the plan.

Contact a Chicago Debt Collection Attorney

Creditors have a difficult time collecting from debtor retirement assets after a judgment. It may not be worth your time to try to collect from a retirement plan, but you may find a way to retrieve some money by examining the plan. A Chicago creditor’s rights lawyer at Walinski & Associates, P.C., can help you enforce a judgment against a debtor by identifying all of the debtor’s available assets. To schedule a consultation, call 312-704-0771.


Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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