A reader’s wife has a court order for payment of past credit card debt, and he wonders if her stimulus check is in danger of seizure.
Stimulus checks are going out and most eligible Americans have plans for how they will use them.
Reader Michael, on the other hand, writes that his wife has a court order for the payment of past credit card debt. Her state tax refund is subject to garnishment every year for this purpose. This Michigan resident is now wondering whether “they can withhold her stimulus check to pay on this.”
Third stimulus legislation does not outlaw garnishment by debt collectorsIn the usual course, a debt collector has to get a court judgment to garnish your money to pay off debt that’s due. Michael, it seems your creditor does have a judgment against you, as is required in Michigan to garnish state tax refunds.
While the first round of stimulus checks sent out under the Coronavirus Aid, Relief and Economic Security (CARES) Act did not put in protections against garnishment of stimulus checks by debt collectors, the second round of stimulus payments last December did expressly prevent garnishment by debt collectors.
Unfortunately, the third round of stimulus payments, under the American Recovery Plan Act, doesn’t have any protection against the grasping hands of debt collectors. There are some debts, such as past due state and federal taxes, that the Treasury has stated cannot be paid off, or offset, using your stimulus checks.
However, the government hasn’t put in any such restriction against the seizure of stimulus checks by debt collectors. Some members of Congress have introduced legislation urging the government to remedy this situation, but unless that passes stimulus checks are not off-limits to debt collectors.
See related: How to get your stimulus check faster
State laws vary
This being the case, once the stimulus payments from the Internal Revenue Service hit consumers’ bank accounts, they could be taken by debt collectors who have gotten a court order allowing them to take the monies. Each state has its own laws that could offer protection.
For instance, the National Consumer Law Center advises that certain states, such as New York, have laws that prevent funds below a certain dollar amount from being seized by debt collectors. In some other states, consumers would have to go through the court system to prevent their funds from being seized to pay off debts.
At the time the first stimulus payments were sent out in 2020, a number of states and counties issued protections against their garnishment. Some of these laws could still apply to the third round of payments.
Protect your stimulus payment
In case you’ve ever had a court judgment against you and still owe money on past debt, you are at risk of having your stimulus monies garnished.
The Federal Trade Commission advises that once a creditor has a judgment against you, it can ask a state court to issue an order to garnish your bank account. The creditor then has to send this order to the bank with the latter being required to hold your money until the court makes a final decision on the case.
In some states, you will receive a notice informing you that a garnishment order has been made against your bank account and telling you what to do if you think the money is exempt from garnishment. In some other states, you will not know until the money is frozen.
The FTC advises that you should follow any instructions if you receive a garnishment order. Specifically, you should meet the deadline for informing a judge that your money is exempt from garnishment.
Michael, since your wife already has a court order to pay off her debt, you should find an attorney who can counsel you about what protections you have under Michigan law. Hope you are able to prevent garnishment of her stimulus check!
Contact me at firstname.lastname@example.org with your credit card-related questions.