It’s a million dollar question whether your creditor can take or garnish your annuity. Usually, a creditor can’t seize or garnish the income that you receive from an annuity, but there are some exceptions. Annuity is an insurance policy that works as a retirement savings account. However, annuities are not as secured as IRAs or 401k plans. To protect annuity income from creditors, it is always better to pay off your debts in time. Debt consolidation is perhaps the best way to pay off outstanding debts and thereby protect your annuity income.
Basics of annuity policy
Annuity is a special type of insurance policy that ensures steady income throughout the life-tenure of the annuitant or the policyholder. People, planning for retirement, often buy annuity to financially protect their retired life. An annuitant has the option to deposit in lump sum or in number of smaller amounts into his annuity plan.
Legitimacy of annuity garnishment
Annuities are insurance products. They are regulated at state level. The insurance commissioner of every U.S. state sets specific rules and regulations for how insurance policies should be fabricated and sold. These rules and regulations also dictate how and when a policyholder can be sued by the creditor. Annuity garnishment is subject to the decision of insurance commissioner of respective state. Therefore, there is no specific answer to whether your annuity can be legally garnished or not. However, annuity garnishment can be avoided and your annuity income can be protected. The first and foremost way of protecting annuity is paying off debts. You can pay off your debts through debt consolidation or any other suitable legal means.
Protection to annuity garnishment
In some states, annuity garnishment is strictly protected by law. U.S. states such as Florida, Minnesota, Oklahoma, New Mexico and Michigan have special annuity protection Acts. These Acts keep the creditors from seizing or garnishing the income from an annuity. If you are a resident of any of these states, you can be rest assured about the protection of your annuity income.
Non-protection to annuity garnishment
States like Massachusetts provide very limited protections against annuity garnishment. If you fail to pay off outstanding debts, your creditor may take your entire annuity income to get his money back. Therefore, being a resident of MA, you must try to protect your income from annuity by paying off debts as early as possible.
Prevent your annuity income from being taken away by the creditor
If you reside in a state that does not have any specific Act for protecting annuity garnishment, you should be careful about protecting your income. In order to protect retirement savings, you can switch to a 401k plan, because such a plan is completely exempted from creditors’ claims. Depositing in IRA can be another good option to save your retirement funds.
You should not leave any space for the creditors to seize or garnish your property or your money. Whether its annuity income or anything else, you must protect it by paying off delinquent debts by means of debt consolidation or any other way of debt repayment.