Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.

Debt collectors often use fear to get you to pay a debt. They don't care how bad it makes you feel; they just want their money! It also doesn't seem to matter that much of what they do violates federal law, i.e. the Fair Debt Collection Practices Act. But I had someone in my office that told me of a threat that really shocked me.

The person said that a phone collector for a student loan for a private bank had threatened to have her husband's 401(k) levied if he didn't pay! That is just outrageous! Naturally, her husband was shaken up by this threat. But the fact of the matter is that, with two exceptions, a creditor can't reach money in a 401(k)!

Why Can't It Be Done?

This is because most private employer-sponsored retirement plans are regulated by the federal Employee Retirement Income Security Act (ERISA). These include 401(k)s, 403(b)s, savings incentive match plans for employees (SIMPLEs), and profit-sharing plans and defined benefit plans.

ERISA itself features something called an “anti-alienation” provision that essentially bars employers from allowing creditors to garnish or seize employees’ retirement funds while the employer still possesses them. The two exceptions are a levy for federal taxes and a claim by an ex-spouse in a divorce action.

Not Even in Bankruptcy!

A telling point that proves this is that funds in a 401(k) or other ERISA qualified plans are not considered an asset in a bankruptcy! That's right, a bankruptcy trustee can't reach those moneys in order to pay creditors. This is specified in the bankruptcy code.

If you live in South Jersey and have been threatened with something like this, you may have a claim against the debt collector under federal law. Please call my office at 856-432-4113 or contact me through this site to schedule an appointment to come in. Don't let them use fear to get to you!

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