The coronavirus stimulus bill doesn’t protect against your check being garnished by private debt collectors in case they have a judgment against you to collect the funds. But there are steps you can take to prevent it from happening to you.
Now that the IRS is starting to send out the payments, you might be on the lookout for them.
Unfortunately, there’s many a slip between the cup and the lip, and your stimulus payment could face the danger of garnishment.
Stimulus package does not provide garnishment exemption
The stimulus legislation spells out that your check cannot be used to offset certain debts to the federal or state governments, such as for federal taxes you owe. Past due payments on federal student loan debt are also exempt, but not any overdue child support you owe.
However, it doesn’t protect against your check being garnished by private debt collectors in case they have a judgment against you to collect the funds. Not only that, but there is also a lesser danger that banks could take the funds to offset any debt or fees you owe them.
Kiran Sidhu, policy counsel at the Center for Responsible Lending, a consumer advocacy group, said, “Congress did not exempt the stimulus check payments by marking them as federal benefits in the CARES Act, and the U.S. Treasury has failed to designate them as exempt through its rule-making authority. So, consumers may well find that these checks won’t go toward their intended purpose – food, rent, electricity – but rather go straight into the hands of creditors and debt collectors. Also, payday lenders with access to bank accounts could seize sizable chunks of these checks.”
Attorneys Lisa Saunders and Margot Saunders of the National Consumer Law Center wrote in an online advisory that every state allows consumers to make their case in court that their bank account funds cannot be seized, but they can do so only after the funds are frozen. Unfortunately, with today’s lockdown situation, it is difficult to exercise such rights.
States and officials act to provide garnishment protections
The good news is that various government officials have weighed in to stop your stimulus check from being garnished.
For instance, Massachusetts Attorney General Maura Healey has put in emergency debt collection regulations that spell out that creditors and debt collectors cannot garnish stimulus checks. Ohio Attorney General Dave Yost has taken similar action.
And the governors of Illinois and Washington have suspended wage garnishments for a period of time. Healey, Yost and 23 other state attorneys general, as well as the Hawaii Office of Consumer Protection, have sent a letter to Treasury Secretary Steve Mnuchin urging him to declare the stimulus checks to be benefits payments that cannot be garnished.
Similarly, legislators have stepped up to protect the stimulus checks. Senators Ron Wyden (D-OR), Elizabeth Warren (D-MA), Sherrod Brown (D-OH) and Josh Hawley (R-MO) have all urged the treasury secretary to make the stimulus checks off-limits to garnishment. Brown and Warren have also called on banks to not seize stimulus checks.
In a letter responding to Senators Brown and Warren, the American Bankers Association, a banking industry trade group, said “depository institutions have no discretion and are obligated to comply with applicable state laws and court-ordered garnishments.”
That’s why the ABA has also asked Congress to clarify that these payments are protected from garnishment orders that they would otherwise be obligated to follow.
As for the possibility that banks themselves might use the checks to offset any amounts their customers owe them, the ABA noted that many banks are already waiving late fees and overdraft fees.
According to the ABA letter, “Many of our depository institutions are taking extraordinary steps to ensure customers are able to access the full economic impact payment, notwithstanding whether the customer has a negative balance in the account.”
How to prevent your stimulus check from being garnished
You could also take some proactive steps to ward off the possibility of losing your stimulus check.
If you have a court judgment against you, for instance, you could face a real danger of garnishment. Even though the Receivables Management Associated International, a trade group for debt buyers, is asking its members not to attempt to collect money from stimulus checks, there is no reassurance that this will not happen.
NCLC and CRL attorneys advise that you could take the following steps:
- Move the stimulus money out of the account as soon as possible, either taking it in cash or through a debit card or electronic payment to pay for necessities.
- Ask for your payment to be made to a prepaid card or an account at a smaller bank or credit union, since creditors are typically not watching these venues.
- If you already receive federal benefits, such as Social Security, there is garnishment protection for up to two months of such payments. You should take out enough funds to make sure your stimulus check does not push your balance over the safe limit.
- Ask for your stimulus check to be sent by mail – although you risk getting it later – and cash it rather than depositing it into your bank account.
- See if you can work out a payment plan with your creditors.
- If your money has been garnished, you could try to get it back from the bank or file a complaint with your state attorney general, financial regulators, the Consumer Financial Protection Bureau or the Federal Trade Commission.