Are Annuities Sheltered From Creditors?

When financial hardship and bankruptcy hit, debtors find themselves in danger of losing most of their assets. However, investments related to retirement are often exempt from debt collection, in part to ensure debtors have a basic subsistence. Annuities are sometimes considered retirement investment instruments and are therefore exempt from collections in some states. Rules on annuities and collections vary widely and rang from fully protected to partially protected to not protected at all.

Complete Shelter

Some states make annuities unconditionally sheltered from creditors. These include Michigan, Minnesota, New Mexico, Okalahoma Texas and Wisconsin. California protects unmatured policies. Iowa also protects policies provided policyholders don't purposely overpay during the year prior to bankruptcy while Louisiana has a similar rule protecting annuities provided they are not opened within nine months of bankruptcy. North Carolina and Rhode Island protect individual retirement annuities and Wisconsin protects them provided they are for retirement, disability or death, among other factors.

Reasonable Amounts

A few states including Georgia, Missouri, Mississippi, New York and Utah protect annuities to a "reasonable extent" -- meaning enough to sustain a person despite bankruptcy. This vague definition leaves it to bankruptcy courts to apply in each individual case. Annuity holders should expect to persuade a judge to protect their annuity money.

Spouses and Family

Annuities in the name of a debtor's spouse, children, parent or other dependent is exempt from creditor collection in Hawaii, Illinois, Maryland, Ohio, Pennsylvania and Tennessee. North Dakota also extends protection to family members and dependents for amounts up to $100,000 per policy and $200,000 in total value.

Prescribed Maximums

Many states have statutes giving specific exemptions on monthly annuity payments. Thus, policy holders can receive some of their annuity income, but anything in excess of the maximum exemption goes to creditors. Exemptions range between $250 and $1,250 per month. States with set maximum exemptions include Alabama, Arkansas, Delaware, District of Columbia, Idaho, Kentucky, Maine, Nevada, New Jersey, South Dakota, Vermont, Washington and Wyoming.

No Protection

Creditors going after assets in Colorado, Massachusetts, Montana, New Hampshire, Virginia and West Virginia are likely to succeed. State laws do not exempt annuities from collections in any way.