BAPCPA and ERISA Protections

• The Bankruptcy Abuse Prevention and Consumer Protection Act, or BAPCPA, passed in 2005 and the Employee Retirement Income Security Act, or ERISA, passed in 1974 are federal laws that provide protection of tax-deferred or tax-exempt retirement plans. Defined benefit and contribution plans cannot be garnished to pay money you owe creditors and cannot be seized if you declare bankruptcy.
  
  

Defined Benefit and Contribution Plans

• A defined benefit plan is a retirement pension plan that guarantees you a specific income when you reach retirement age, such as Social Security and other federal pension plans. A defined contribution plan is a tax-deferred savings plan, such as a 401k or Individual Retirement Account. Almost all pension plans fit into one of these two categories, which means they are exempt from creditors. If you are unsure whether your retirement pension is protected, you may wish to check with your plan's administrator.
  
  

Family Support Exception

• While creditors cannot garnish your retirement income, your former spouse can if you owe money for back child support payments or alimony. If your former spouse goes to court and receives a domestic relations order against you, the courts will allow her to seize a portion of your retirement benefits.
  
  

Bank Levies

• In addition to money you owe for family support, if you owe money to the Internal Revenue Service, your retirement accounts can be garnished through a bank levy. The IRS does not need a court order to seize money in your financial accounts, including protected accounts, such as your 401k and IRA accounts. The IRS can also garnish a portion of your Social Security benefits.