Beware: Your coronavirus stimulus checks could be garnished

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The IRS has already started sending out the third stimulus checks of up to $1,400. This latest round of stimulus checks is the highest amount so far (earlier checks amounts being up to $1,200 and $600). However, the third round of coronavirus stimulus checks don’t have the same protection as the earlier rounds, and could be garnished by debt collectors.

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Can your coronavirus stimulus checks be garnished?

The third stimulus checks were passed by Congress fairly quickly by using a special process, called budget reconciliation. Probably because of this, the coronavirus stimulus checks didn’t get full protection from all garnishment.

Generally, there are three types of debt that can be paid through garnishment – unpaid IRS tax debt, child support payments and private debt. The third stimulus check gets protection from outstanding tax debt and child support, but not from private debts. A private debt includes an amount outstanding to a civil judgment, ranging from civil damages to consumer debt in default.

In contrast, the second stimulus checks of $600, which went out in December, had protection from all three forms of collection. Under the CARES Act, which was passed in March last year, state and federal agencies could garnish your stimulus checks to cover past-due child support. This rule changed with the second stimulus check, and the same applied to the third stimulus checks as well.

There isn’t much you can do to prevent debt collectors from garnishing your stimulus check. As per the experts, the only thing you can do is close your bank account. Doing this, however, would delay your stimulus check, as the IRS would then have to send you a paper check.

Those who are expected to get paper checks and are concerned about garnishment should cash their checks at retail stores or check cashers, rather than going to their bank. Doing this, however, would mean users incur higher charges.  These charges could range from $8 at Walmart to up to $195 for a family of four at a check casher.

Efforts underway to stop garnishment

Efforts are underway to prevent debt collectors from garnishing the direct payment amount. Several banking groups have requested lawmakers to come up with legislation that would prevent private debt collectors from garnishing the check amount.

“Otherwise, the families that most need this money — those struggling with debt and whose entire bank accounts may be frozen by garnishment orders — will not be able to access their funds,” the banking groups, including American Bankers Association, said in a letter to Congress.

Also, Maryland Gov. Larry Hogan approved an Emergency Order that exempts the direct payment from garnishments.

"All financial institutions are hereby ordered not to hold an ARPA Act Recovery Rebate of the judgment debtor under a writ of garnishment," read the Emergency Order.

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