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Is an annuity garnishable?

Is an annuity garnishable?Generally speaking, an annuity is not garnishable. There are certain kinds of income which are exempt from being seized by creditors to pay a judgment owing, and the income received from an annuity would be one of them.

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Each state has its own laws about whether an annuity may be garnished to satisfy an unpaid debt. Specifics on annuities and wage garnishment are provided below.

Annuity Basics

An annuity is a financial product that provides a steady source of income, and is a choice available for people planning their retirement. The person buying the annuity, known as the annuitant, deposits either a lump sum or a number of small amounts into the plan. The money is invested by the insurance company on behalf of the annuitant.

Once the funds are invested in the plan, they grow on a tax-free basis until they are withdrawn. At that point, they are taxable to the recipient. An annuity may be set up to pay out an income over a set time period or for life.

The amount of money that the annuitant may receive from the annuity will depend on the amount invested in the plan and the payout schedule. An annuitant may choose to receive payments annually, semi-annually, quarterly or monthly. Once the annuity is in the stage where the annuitant starts receiving payments, a certain amount must be withdrawn from the plan each year.


When a creditor obtains a judgment against an individual and that person does not pay the amount owing, the creditor may take steps to recover the money by taking assets that belong to the debtor. The creditor may choose to seize personal property owned by the debtor to satisfy the judgment. Wages may be garnished, as well as funds held in a bank account.

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Avoiding Garnishment of an Annuity

Ideally, a debtor will pay the amount he or she owed voluntarily, and there will be no need for the creditor to garnish his or her wages or seize assets to satisfy the debt. If a person holding an annuity wants to avoid having a creditor attempt to garnish it, he or she should take steps to keep the money received from the annuity separate from any other income.

The money received from the annuity should be deposited into a checking account that is not used for any other purpose. That way, the money received from the annuity doesn’t become mixed in with any other sources of income the annuitant receives. The checking account should be held solely in the annuitant’s name to further keep these funds from being mixed with other money coming into the household.

If there is any dispute over who owns the funds in the bank account and whether they can be garnished, the court may order that the bank account be frozen until the matter is resolved. In a situation where a member of the household has a judgment signed against him or her, the annuitant will want to make sure that any funds being received from the annuity are kept separate was well.

He or she should inform the court that the funds in the bank account are benefits under an annuity and are not subject to garnishment. The annuitant will likely have to sign a document to this effect and file it with the court.

Even if the debtor lives in a state that allows annuities to be garnished, the amount on deposit with the insurance company is protected. The creditor will be paid out of the amount the annuitant receives monthly, or on the schedule the annuitant has chosen.

The creditor will only be paid from the proceeds of the annuity until the annuitant’s death. After that point, the creditor may be able to make a claim for any balance owing to the annuitant’s estate, depending on the location and the laws in effect at the time.

An annuity may be exempt from garnishment proceedings, depending on the state. To avoid having the funds received from an annuity becoming mixed with other sources of income and possibly being seized by a creditor, they should be kept in a separate bank account that is only used to receive annuity proceeds. Rather than having to be concerned about the possibility of annuity payments being seized, a better choice is for the debtor to pay the judgment as ordered.

If an annuitant is being threatened with garnishment, he or she should consult a qualified attorney to get advice for his or her specific situation.

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