Millions of Americans have received the stimulus checks from the federal government this week under the Coronavirus Aid, Relief and Economic Security (CARES) Act. However, many are worried that they could lose all or part of the money to debt collectors (credit card, medical, or private student loan debts), which will automatically siphon the money from their bank account.
Beware of debt collectors
These stimulus checks are part of the government’s $2.2 trillion stimulus bill. The IRS reported last week that it processed 80 million stimulus checks on Friday, and the same would be available to the people this week. The government is sending $1,200 to those with adjusted gross income below $75,000. Married couples who file taxes jointly and earn below $150,000 are getting $2,400, plus $500 per child.
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The payment reduces in size for those with adjusted gross income above $75,000 ($150,000 for married couples) and stops at $99,000 per year ($198,000 per year for married couples). If the IRS has information on your bank account, the money will automatically appear in your account. If the IRS does not have your information, you can submit it from this link.
These stimulus checks are extremely important for those who have lost their jobs because of the coronavirus and those who already have bills piling up. However, there is a growing concern among people that debt collectors could garnish or utilize their stimulus checks even before they could use it to pay for necessities.
Debt collectors may use a loophole in the law to garnish the stimulus checks, leaving those who are really in need with little or no money. According to the National Consumer Law Center, about 33% of Americans have debt in collections.
Can debt collectors use stimulus checks?
The CARES act, which was passed into law last month, has no provision to protect the stimulus payments from certain debt collectors. There is, however, a provision that protects the money from being used for unpaid taxes or federal student loan payments.
“Creditors may view stimulus payments as an opportunity to seize money for amounts owed on outstanding court judgments. Millions of Americans have court judgments against them,” an associate director at the National Consumer Law Center in Washington, D.C., Lauren Saunders, said, according to Market Watch.
In a letter to Treasury Secretary Steven Mnuchin this week, twenty-five state attorneys general and the Hawaii Office of Consumer Protection have raised the issue. The letter also requests the authorities to come up with a provision that prevents payments from private debt collectors.
Republican Sen. Josh Hawley of Missouri and Democratic Sen. Sherrod Brown of Ohio have also asked the Treasury Department to intervene in the matter. However, the Treasury Department has still to come up with any guidance for private debt collectors.
In the absence of federal guidelines, several states, including Massachusetts, Ohio, Illinois and Washington, have issued their own guidelines to protect the stimulus checks from the private debt collectors.
It is mandatory and morally right as well to pay your debts. However, during such testing times when you are being forced to stay at home because of coronavirus, it is more important that you pay food and rent bills first.
So, unless there is a clear provision from the government to protect your stimulus checks from the private debt collectors, there are a few tricks that you can use to protect your money.
How to stop debt collectors
The very first trick is to monitor your bank actively and withdraw the money as soon as it comes in the account.
The second trick is to stay up to date with your state’s laws. As said above, many states have issued guidelines prohibiting garnishment from private debt collectors. Apart from the states mentioned above, Delaware already has a law that restricts garnishment orders to the banks in the state.
The third trick is to make use of your rights. Lauren Saunders notes that a special right is available for those who get “Social Security, SSI, Veterans, or certain other federal benefits.”
“A U.S. Treasury rule exempts from garnishment an amount in a bank account or direct express card equal to two months of federal benefit payments for that individual,” Saunders said.
The fourth trick is for those who have not yet received their stimulus payments, or will get a paper stimulus check. Such users can take the help of their attorney to protect them from garnishment. Also, you should not deposit your checks into your bank account; rather cash the check as soon as you get it. Moreover, those who are still to get the stimulus payment and fear their accounts might be garnished, can request the payment via paper check. They can do so by going to the IRS.gov’s “Get My Payment” service. Once they get their check, they can quickly cash it rather than depositing it, Sanders note.
The last trick is to quickly redirect the payment into a prepaid card, or into a bank account with a smaller bank. As per the experts, the debt collectors are unlikely to go for garnishment on smaller banks. There is no exemption for prepaid cards from garnishment, but since smaller institutions usually issue them, debt collectors may not approach them.