The idea of having your income garnished owing to an outstanding debt is a frightening prospect. However, you shouldn't have anything to worry about when it comes to home insurance payouts resulting from a claim.
How Garnishment Works
Garnishment typically only applies to regular income, such as your paycheck from work. Even when it comes to regular income, there are a number of exceptions. Child support, alimony, social security, disability and retirement income are all exempt from garnishing. Although there are exceptions, wage payment is very nearly the only form of income that you can expect to be garnished.
Even wages can be exempted in a number of cases. Filing for bankruptcy, for instance, can prevent some creditors from being able to collect a regular payment out of your wages.
With home insurance payouts, it is effectively a one-off deal: You file the claim, and, if your insurer recognizes the claim as valid, they either cut a check or work directly with your contractors to make the necessary fixes. Given that the purpose of an insurance payout is specifically to make those repairs, creditors have little interest in collecting from it.
Further, garnishment isn't as common as you might think it to be. Most of the time, a creditor isn't able to garnish your income without first suing you in a court of law, and then sending the necessary documentation to your place of work. It will be your employer who actually collects the garnishment out of your pay. Government entities — such as the IRS or federal courts — don't need to take so many steps, but for a bank or private lender, it is actually very difficult to earn the right to garnish a debtor's wages, and generally not worth the time, effort and court costs.
In general, the only thing you really need to worry about with garnishment is if you have debts owing to the IRS, child support or legal decisions, and even then, in more cases than not, only your income from work is really at risk. In short: If something happens to your home and you're worried about filing a claim for fear that the payout may be garnished, don't be.