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Dealing with credit card debt and concerns about garnishment

Some consumers live in fear of what credit card companies can actually do to them. One question that often arises is whether they can garnish an IRA, especially if the IRA is with the same issuer as the credit card in question.

First of all, any creditor has to successfully sue a debtor in order for a judgment to be lodged. This also includes whatever third party collector they might sell or assign the debt to. The only exception to this rule is the government, which doesn't need a judgment.

Whether retirement funds, such as those in an IRA, are in the same bank as the credit card issuer doesn't matter. Their ability to get at a debtor's retirement assets are no better than anyone else's in the same position, according to the president of the National Association of Consumer Bankruptcy Attorneys.

As a general rule of thumb, federal benefits are exempt from garnishment. These include U.S. Department of Veterans Affairs pensions and Social Security. IRAs, pensions and 401(k) plans are also normally protected, but again, this does not include government garnishments. Once a consumer withdraws their funds from any retirement plan and transfers them to their bank account, then the funds are fair game for creditors, according to a staff attorney for Consumers Union.

The best way to avoid any of this is to work things out with the credit card issuer prior to getting to the point of judgment. It's also a good way to avoid creditor harassment. Staying in touch with them and working out an equitable solution can save in the long run. Collections and lawsuits cost them money, so they're usually happy to work with consumers to resolve the issue. For those who need assistance dealing with creditors, a bankruptcy attorney could be of help.

Source: FOX Business, "Can Credit Card Company Garnish IRA?", Jeanine Skowronski, July 10, 2014

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