Retirement is supposed to usher in an era of financial stability and predictability, and for some retirees, it does. But for many older Americans, the pressures of today’s rapidly rising living costs, coupled with their lingering high-rate credit card balances and expensive medical debt, are creating new financial issues that are adding to the stress on their fixed incomes. In turn, it’s getting more difficult for many retirees to keep up with what they owe on their debts, and as the payment delinquency rates climb, more are finding themselves on the receiving end of collection efforts — and, in some cases, debt lawsuits.

Being sued over unpaid debt is never ideal, but it can be especially detrimental for retirees who rely on fixed income sources like Social Security, pensions or retirement savings to cover their monthly expenses. A lawsuit from a creditor can not only be difficult and expensive to navigate, but it can also raise immediate concerns about losing monthly benefits, facing a bank account freeze or even jeopardizing a retirement nest egg. But while creditors can pursue retirees for unpaid debt, there are also strict limits on what they’re legally allowed to take.

For example, certain forms of retirement income and assets have strong federal protections attached to them, while others may be more vulnerable. So what exactly can creditors take — and what’s off limits — when you’re retired and being sued over delinquent debt?

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Retired and sued for debt? Here’s what creditors can (and can’t) take

If a creditor sues you and wins a judgment, they may gain access to certain collection tools like wage garnishment, bank levies or property liens, but your retirement status changes the equation in several important ways. Here’s a closer look at what may — and may not — be at risk:

Your Social Security benefits are generally protected

Social Security income is among the most protected assets a retiree has. Federal law prohibits garnishment of Social Security benefits for most private debts, including credit cards, medical bills and personal loans, even if you lose a debt lawsuit. And, the same protection applies to Supplemental Security Income.

The exceptions to this rule are narrow: Federal debts such as back taxes, federal student loans and court-ordered child support or alimony can still trigger garnishment of Social Security. Private creditors, however, generally cannot directly seize those monthly payments.

That said, retirees need to be careful about where those benefits are deposited. If Social Security funds are mixed with other income sources in a bank account, disputes can sometimes arise during a bank levy or account freeze. Maintaining a separate account for protected federal benefits may help create a clearer paper trail if collection activity escalates.

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Your retirement accounts have varying levels of protection

Many retirement accounts also come with legal protections, though the rules vary depending on the account type and state laws. In many cases, though, qualified retirement accounts like 401(k)s and pensions governed by the Employee Retirement Income Security Act (ERISA) receive broad federal protection from creditors. Traditional and Roth IRAs also often receive at least partial protection, though limits can depend on state exemption laws and whether the funds have already been withdrawn.

Once retirement money is distributed into a standard checking or savings account, however, those protections may weaken. After those funds leave a protected retirement account and become commingled with other funds, your creditors may have an easier time targeting the cash. So, if you’re drawing regular retirement distributions, make sure to know how the legal status of those funds can change after withdrawal.

Your bank accounts could still be vulnerable

While there are protections in place, your bank accounts may still be frozen or levied under certain circumstances. For example, your creditors may still attempt to levy the account after obtaining a judgment, even if protected funds like Social Security are deposited into an account. While federal banking rules require banks to automatically protect up to two months’ worth of electronically deposited federal benefits, any amounts exceeding that threshold may still become temporarily inaccessible until protections are verified.

Joint accounts can create additional complications for retirees. For example, if you share an account with a spouse, adult child or other family member, your creditors may attempt to freeze the entire account while ownership of the funds is sorted out. Because of this, if you’re facing collection lawsuits, you may benefit from reviewing how your accounts are structured before the problems escalate.

Your home and other property may not be fully protected

Whether a creditor can take your home over unpaid debt depends heavily on your state’s homestead exemption laws and the amount of equity involved. In many states, primary residences receive at least partial protection from unsecured creditors, but protections vary significantly by location. Some states shield large amounts of home equity, while others offer much smaller exemptions.

Creditors may also place liens on property after winning a judgment, even if they cannot immediately force a sale. That can create problems later if you’re retired and need to refinance or sell the home. Your vehicles, investment accounts and other non-retirement assets may also be subject to collection efforts depending on state exemption rules and the type of judgment involved.

The bottom line

Retirees facing debt lawsuits need to be aware that there are legal protections in place to protect their Social Security benefits, retirement accounts and home equity, which can help shield these assets from private creditors. However, there are certain assets — including bank accounts, non-retirement savings and some property — that may still be vulnerable depending on the situation and state law. That’s why retirees dealing with collection activity should understand exactly which protections apply before making financial decisions. In many cases, exploring your debt relief options early can help prevent a difficult situation from becoming even more financially disruptive.